9911796707
TMI Blog2001 (9) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... o force with effect from 7-11-1994. The learned Judge, by the impugned common order, made the notices of motion absolute in part. It was held that the plaintiffs do have a prima facie right to maintain the suit to seek a declaration that the acquisition of the disputed shares is void being in breach of the SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 1994 ('the 1994 Regulations'). It has also been held that the civil court does have jurisdiction to interpret the provisions of the statute and the 1994 Regulations so as to lay down the correct interpretation and the frontiers of jurisdiction of the statutory authorities concerned. It is, however, held that the exercise of jurisdiction by the court should not be extended to an extent so as to infringe the jurisdiction of the SEBI. That, prima facie, a suit was maintainable in common law for rectification of the company's membership register. The consequential decision on disinvestment, however, will have to be arrived after considering all aspects including a hearing by the SEBI in which case the actual order of disinvestment could be passed by the SEBI or the SEBI may pass any other order which it is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition of shares in defendant No. 12 company/ Herbertsons Ltd., by defendant Nos. 3, 4, 5, 7 and 8 is not in breach of the 1994 Regulations, and further whether the conversion of debentures of defendant No. 12 into shares in favour of defendant No. 2 is in breach of the aforesaid Regulations. The plaintiffs contend that such conversion and acquisitions are void since they offend the provisions of the 1994 Regula-tions, and, therefore, the register of members of the company be suitably modified to exclude the names of the persons/companies who have so acquired the shares. 4. The defendants, who are the appellants before us, on the other hand, contend that the conversion of debentures into shares, and the acquisition of shares by the aforesaid defendants, do not in any manner breach the provisions of the 1994 Regulations or the Regulations framed in 1997. Moreover, the defendants have no right to claim rectification of register of members of the company by filing the suit before a civil court. 5. On a consideration of the material placed before the Court, the learned Judge has found a prima facie case in favour of the plaintiffs/respondents herein and has, therefore, passed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting 24.90 per cent of the subscribed capital as on 31-3-1997 by himself and/or his companies and/or his nominees. The case of the plaintiffs is that between May 1995 and May 1997, defendant No. 1 through companies owned and/or controlled by him, viz., defendant Nos. 2 to 5 acquired in direct contravention of the law further shares in Herbertsons Ltd. Defendant No. 12 company. The various acquisitions have been detailed in the plaint as under: (a)On 14-12-1993, Airedale Investment & Trading (P.) Ltd., defendant No. 2 company, acting in concert with defendant Nos. 1 and 3 to 11, acquired through negotiations 75,000 fully convertible debentures which were purported to be converted into 3,75,000 equity shares on 11-8-1995. The conversion of the debentures into equity shares was done after the 1994 Regulations had come into force and this was done without making a public announcement. (The trial Judge has held that since the debentures were purchased before the 1994 Regulations came into force, no relief, at this stage, could be granted to the plaintiffs in respect of these shares.) (b)In December 1995, Imfa Holdings (P.) Ltd., defendant No. 3 company, acting in concert with defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. (The record discloses that defendant No. 7 acquired these shares between 10-9-1998 and 19-9-1998 while defendant No. 8 acquired the shares on 16-12-1998). The additional shares acquired by defendant Nos. 3, 7 and 8 have not been registered in the register of members of defendant No. 12 company in favour of the aforesaid companies. 8. It is alleged that the aforesaid purported acquisitions were made by and/or for defendant Nos. 1 to 11 for a common objective and purpose of substantial acquisition of shares and voting rights in order to gain control over Herbertsons Ltd., defendant No. 12 company by co-operating on the basis of an understanding/agreement to gain such control. The plaintiffs, therefore, filed the suit for a declaration that the aforesaid acquisition of shares being contrary to the express provisions of law, conferred no rights directly or indirectly on the persons purporting to acquire the shares, and for consequential reliefs. 9. It is further averred that defendant Nos. 7 and 8 claim that they had lodged application for registration of transfer on 19-12-1998. Defendant Nos. 3, 7 and 8 have also filed Suit No. 297 of 1999 for a declaration that they are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by purporting to exercise voting rights in respect of the shares held by them as they intended to defeat the aforesaid Resolution by exercising their voting rights. The plaintiffs who hold shares aggregating 4.45 per cent in defendant Nos. 12 company were constrained to take appropriate steps to prevent defendant Nos. 2 to 5 from exercising voting rights in respect of the shares which have been acquired by them in clear contravention of the SEBI Regulations of 1994 and 1997. 13. In paragraph 12 of the plaint, the plaintiffs have averred that they came to know about acquisitions made by Kishore R. Chhabria, defendant No. 1 from an article which appeared in the Economic Times, Bombay Edition of 15-6-1997. Moreover, defendant Nos. 1 and 11, viz., Kishore R. Chhabria and Madan D. Chhabria have unequivocally claimed that they are persons having control over defendant Nos. 2 to 10 companies, and they are acting in concert with each other which is evident from the declaration dated 17-4-1997 filed by defendant No. 1 with Herbertsons Ltd., defendant No. 12 company, pursuant to the requirements of regulation 3(3) of the 1997 Regulations. The plaintiffs believe that similar declaration has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 12. 15. The plaintiffs have averred that had such public announcement, as required by law, been made by the concerned defendants, the plaintiffs would have made competitive bids for the acquisition of the shares involved. The plaintiffs continue to be ready and willing to do so. Apart from other legal submissions, the plaintiffs have also submitted that as shareholders, their valuable rights of property are being adversely affected by the breaches of law by defendant Nos. 1 to 11 and the plaintiffs are, therefore, entitled to bring these flagrant violations of law to the notice of the Court, and to seek the reliefs prayed for, by acquiring further shares and voting rights in defendant No. 12 company in breach of law. Defendant Nos. 1 to 11 are detrimentally affecting, and continuing to affect the rights and interests of the plaintiffs, the other shareholders and the public. 16. In the circumstances, the plaintiffs have submitted that the Court may be pleased to declare that the purported conversion of debentures into equity shares in favour of defendant No. 2 and the purported acquisition of the aforesaid shares by defendant Nos. 3 and 4 be declared to be illegal, null, vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in favour of defendant No. 5 was justified as being for sufficient cause, (vi)that this Hon'ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 3,64,750 shares in favour of defendant No. 5, (vii)[Red ink rider VI] that this Hon'ble Court be pleased to declare that the purported acquisition of 54,000 equity shares in Herbertsons by defendant No. 3 is illegal, null, void ab initio and of no legal effect whatsoever, (viii)[Red ink rider VII] that this Hon'ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 54,000 shares in favour of defendant No. 3, (ix)[Green ink rider F] that this Hon'ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 1,25,000 shares and 25,800 shares in favour of defendant Nos. 7 and 8 respectively. (x)[Green ink rider F] that this Hon'ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 1,25,000 shares and 25,800 shares in favour of defendant Nos. 7 and 8 respectively, (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, and accordingly, it was ordered and directed that all the proceedings and decisions taken at the annual general meeting of defendant No. 12 scheduled to be held on 27-10-1997 will be subject to the orders of this Court on the notice of motion. Thereafter, the annual general meeting was held on 27-10-1997 which proceeded peacefully, and the resolutions moved were passed unani-mously by show of hands. The existing management was not disturbed in any manner whatsoever. 18. The next annual general meeting of defendant No. 12 company was to be held on 30-12-1998. Again, the plaintiffs took out Notice of Motion No. 3932 of 1998 with substantially the same prayers. In the affidavit in support of the notice of motion, filed by plaintiff No. 1 on 14-12-1998, it was stated that the plaintiffs had become aware of the devices adopted by the defendants for the acquisition of the shares. It was stated that Royal Wines & Tracstar Investments (P.) Ltd., were proprietary concerns and/or companies of defendant No. 11. They had advanced huge loans to defendant Nos. 3 to 5 to enable them to purchase the shares of defendant No. 12 company. Defendant No. 3 company with a paid-up capital of Rs. 4,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res acquired by defendant No. 5 shall be kept in a separate cover. (3)The meeting shall be held and the voting shall be taken under the chairmanship of the person who is to preside over the meeting, but in the present of an officer of this Court, to be nominated by the Prothonotary and Senior Master of this Court. (4)The separate covers in which the votes are to be kept as indicated above shall be sealed by the chairman of the meeting as also the officer who is to be present at the meeting and at the voting as directed above. (5)The officer of the Court shall deposit the containers/envelops with the Prothonotary and Senior Master." (p. 21) 20. We may, at this stage, notice that Chamber Summons No. 1153 of 1998 was moved by the defendants seeking further particulars from the plaintiffs to enable them to file an appropriate reply to the notice of motion and the plaint. This was opposed by the plaintiffs. Later, when the Chamber Summons came up for orders along with the notices of motion, the defendants did not press for any order on the Chamber Summons till the notices of motion were decided. In fact, defendant No. 11 filed his affidavit in reply to the Notice of Motion No. 3120 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiffs relevant material from the record of the company. This is further obvious from the fact that while the plaintiffs have challenged the acquisition of shares by defendant Nos. 1 to 11, they have not challenged the acquisition of 5.2 per cent of the equity shares by the said Vijay Mallya through the companies under his control. 22. Apart from the legal objections, defendant No. 11 has disclosed facts in his affidavit in reply relating to the acquisition of shares by defendant Nos. 2 to 8 companies. The affidavit in reply also reveals the manner in which the acquisition of shares took place through different companies, and how all those companies came under the control of defendant Nos. 1 and 11. It is stated that on 14-12-1993, on the basis of a negotiated arrangement, 22,15,800 equity shares of Herbertsons Ltd., representing 26 per cent of its total equity share capital were sold to defendant Nos. 2, 6, 7, 8, 9 and 10 companies. These shares were purchased under a negotiated arrangement from the companies under the control of Vijay Mallya. This acquisition, undoubtedly, took place before the 1994 Regulations came into effect. Defendant No. 2, Airedale Investment & Trading (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shareholder of 10,38,791 equity shares of Herbertsons Ltd., defendant No. 12, (about 10.91 per cent of Herbertsons share capital). It is stated that on 7-12-1995, Imfa had lodged for registration of transfer into its name the equity shares purchased by it between 27-10-1994 and 21-11-1995. On the same day, Imfa had also addressed to SEBI informing it of this fact and seeking other clarifications. On 21-5-1995, SEBI addressed a letter to Imfa alleging that the provisions of the 1994 Regulations were applicable to the aforesaid acquisition of shares by Imfa and directed Imfa to comply with the 1994 Regulations. On 30-5-1996, defendant No. 12 company registered the transfer of shares in the name of Imfa, though earlier it had refused to do so. A reference is made to the correspondence that ensued between SEBI and Imfa regarding the applicability of the 1994 Regula-tions. By a letter dated 7-12-1995, as earlier noticed, Imfa informed SEBI the fact of acquisition of 10,39,341 shares of Herbertsons Ltd., and seeking certain clarifications to which SEBI responded by a letter dated 21-5-1996, stating that 1994 Regulations were applicable to the acquisition in question. The said letter wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5 from one S.J. Chhabria, a cousin of defendant No. 1 and a nephew of defendant No. 11 and his wife. They were not related to defendant No. 11 within the meaning of the Act. On that day, he was also appointed as Director of defendant No. 5 company. By this time, defendant No. 5 company had already acquired 3,64,750 equity shares of Herbertsons Ltd., representing 3.893 per cent of its equity capital. It is stated that the board of directors of defendant No. 5 company had resolved on 22-8-1996 to purchase shares of Herbertsons Ltd., not exceeding 4 lakhs shares, and pursuant to the said resolution, the aforesaid shares were purchased between 27-8-1996 and 14-2-1997. The aforesaid shares were duly lodged with Herbertsons Ltd., defendant No. 12, together with the share transfer form and other documents, but the board of directors of Herbertsons Ltd., by its Resolution of 3-6-1997 decided to defer consideration of the application for transfer of the aforesaid shares as they were concerned about a possible violation of the SEBI Takeover Regulations. Ultimately, by a letter dated 21-7-1997, addressed to defendant No. 5 company, Herbertsons Ltd., intimated refusal to register the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994 Regulations since the concept of indirect acquisition of shares of a listed company by acquiring control of an unlisted company was not present in the 1994 Regulations. This concept was introduced later in 1997 based on the Bhagwati Committee Report. Even SEBI has recognised this position by its order dated 6-3-1997 in the case of Sesa Goa and the Appellate Authority by its judgment dated 20-11-1997 has upheld SEBI's order. The concept of indirect acquisition has been sought to be introduced only in the 1997 Regulations which have prospective application. (e)The aforesaid six companies, viz., defendant Nos. 2 and 6 to10 as well as defendant Nos. 3, 4 and 5 companies and he, (defendant No. 11) his wife and/or the Director/shareholders of these companies are not "persons acting in concert" under regulation 2(d) of the 1994 Regulations. The shareholders and the Directors of these companies were not related within the meaning of section 6 of the Companies Act, to each other or to his wife. No case had, therefore, been made out in the plaint to show that the 1994 Regulations apply. (f)Herbertsons Ltd., defendant No. 12, also accepted this position which is borne out by the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erbertsons Ltd., defendant No. 12 company, with effect from 1-4-1995, he did not control the board of directors. For the first time, he became a Director of the company in 1992 and participated in its management. He was regularly consulted as a Director of the company. He has made an allegation that the funds of defendant No. 12 company were syphoned off with the connivance of Balaji Group, the plaintiffs herein. 31. In its reply, defendant No. 12 adopted the reply filed by it earlier to Notice of Motion No. 3932 of 1998 on 5-2-1999. It denied the charge of collusion between the plaintiffs and Vijay Mallya. It substantially supported the case of the plaintiffs that defendant Nos. 3, 4 and 5 companies were mere device to acquire the shares of Herbertsons Ltd., defendant No. 12, in a clandestine manner. It has further alleged that defendant No. 1 had siphoned off Rs. 120 crores of BDA. 32. In reply to the affidavit in support of Notice of Motion No. 3932 of 1998, defendant No. 11 has asserted that defendant Nos. 1 to 11 had in their names 43.09 per cent of the subscribed share capital of Herbertsons Ltd., defendant No. 12 company. Together with the unlisted shares and the proxies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling which SEBI would have to take further action in the matter. 34. It appears that since Mr. Ram Raheja had resigned as a Director of Imfa, defendant No. 3 company, the second show-cause notice was issued to defendant No. 3 company itself on 31-3-1997. This notice also reiterated what was alleged in the earlier notice, and referring to regulation 10, it was observed that an acquirer who makes outright acquisitions carrying voting rights of more than 10 per cent is required to make a public announce-ment. The notice called upon the Managing Director of defendant No. 3 company to show-cause as to why criminal prosecution should not be initiated under section 24 of the Act for violation of Regulations 6 and 10. 35. The aforesaid two notices were issued by the SEBI before the filing of the suit. After the filing of the suit, notice was issued by SEBI to defendant Nos. 1 and 11 on 8-1-1999. The notice mentions that from the material available to SEBI, defendant Nos. 1 to 11 had acquired 47.48 per cent shares in Herbertsons Ltd., defendant No. 12 company between the years 1993 and 1997 without making any public offer. 27.21 per cent of the shares of Herbertsons Ltd., were acquired p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the refusal of defendant No. 12 company to register transfer of shares in their favour. These appeals are pending before the CLB. As stated by the counsel, defendant Nos. 6, 7 and 8 also propose to file appeals under section 111A(2). 37. To complete the picture, we may notice that another suit being Suit No. 297 of 1999 has been filed by defendant Nos. 3, 7 and 8 on 18-12-1998 for a declaration that they are the beneficial owners of the unregistered shares acquired by them. In that suit, Notice of Motion No. 184 of 1999 has been taken out by them for restraining the defendants therein from preventing them to attend and vote at the annual general meeting on 30-12-1998. The notice of motion was disposed of by a learned Judge of this Court on 29-12-1998, when an agreed order came to be passed. This notice of motion was not pressed by Mr. Rafiq Dada, senior advocate, appearing on their behalf when the matter came up for hearing along with the other two notices of motion in Suit No. 3910 of 1997 (in which the impugned order has been passed). He stated that the aforesaid defendants were plaintiffs in the suit and will seek their remedy before the CLB. In the suit, the two defendants a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a condition for continued listing the whenever a takeover offer is made to or by it whether voluntarily or compulsorily, the following requirements shall be fulfilled. (2)A public announcement of a takeover offer shall be made both by the offeror company and the offeree company when : (a)any person in his own name or in the name of the any other person acquires, whether by a series of transactions over a period of time or otherwise, shares which, when aggregated with shares already held or acquired by such person, shall carry 10% or more of the total voting rights of the offeree company, or (b)secure the control of management of a company, by acquiring or agreeing to acquire, irrespective of the percentage of the voting capital, the shares of the Directors or other members, who by virtue of their shareholdings together with the shareholdings of their relatives, nominees, family interested, and group control or manage the company, or (3)If the offer is made by a person other than the ultimate offerer the identity of such person shall be disclosed at the outset in the public announcement as also in the notification to the Stock Exchange." Before clauses 40A and 40B were inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15Y provides as under:-- "Civil court not to have jurisdiction.--No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating Officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act." Section 15Z provides a further appeal to the High Court in the following terms : "Appeal to High Court.--Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the High Court within 60 days from the date of communication of decision or order of the Securities Appellate Tribunal to him on any question of fact or law arising out of such order : Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding 60 days." Section 20 provides for an appeal to the Central Government from an order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the previous approval of the Central Government, framed Regulations, viz., Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994. These Regulations came into force with effect from 4-11-1994. Under regulation 2(b), 'acquirer' has been defined as follows : "2(b) 'acquirer' means any person who acquires or agrees to acquire shares in a company either by himself or with any person acting in concert with the acquirer;" 'Person acting in concert' has been defined as follows: "2(d) 'person acting in concert' comprises persons who, pursuant to an agreement or understanding acquires or agrees to acquire shares in a company for a common objective or purpose of substantial acquisition of shares and includes : (i)a company, its holding company, or subsidiaries of such companies or companies under the same management either individually or all with each other; (ii)a company with any of its directors, or any person entrusted with the management of the funds of the company; (iii)directors of companies, referred to in clause (i) and his associates; and (iv)mutual fund, financial institution, merchant banker, portfolio manager, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te number of shareholdings of each of the acquirer referred to above. 6. Acquisition of 5 per cent and more shares of a company.--(1) Any acquirer, who holds five per cent or less than five per cent shares in a company and acquires more than five per cent shares:-- (a)in pursuance of a public issue, or (b)by one or more transactions, or (c)in any other manner not covered by (a) and (b) above, shall disclose the aggregate or his shareholding in that company to the company and to all the stock exchanges where the shares are listed. (2) The disclosures mentioned in sub-regulation (1) shall be made within four working days of-- (a)the receipt of intimation of allotment of shares in respect of shares acquired under clause (a) of sub-regulation (1) or; (b)the acquisition of shares, as the case may be. (3) Every company, whose shares are acquired as referred to in sub-regulation (1), shall disclose to all the stock exchanges, where the shares are listed the aggregate shareholdings of that company of all such persons within seven days of receipt of information under sub-regulation (1)." Regulations 9 to 23 which are important provide as follows : "9. Acquisition of 10 per cent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open market unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with the regulations. 11. Who should make the public announcement of offer.--Before making any public announcement of offer referred to in regulation 9 or regulation 10, the acquirer shall appoint a merchant banker holding a certificate of registration given by the Board. 12. Public announcement of offer.--A public announcement to be made under regulation 9 or 10 shall be made in at least one national English daily and one vernacular newspaper of that place, where the shares of the company are listed and most frequently traded. 13. Timing of the public announcement of offer under regulation 9.--The public announcement referred to in regulation 9 shall be made not later than four days of either the finalisation or the negotiation, or entering into an agreement, or memorandum of understanding to acquire shares, whichever is earlier. 14. Timing of the public announcement of intention under regulation 10.--A public announcement of intention to acquire shares referred to in regulation 10 shall be made either immediately before the acquisition of any shares, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance. 17. Letter of offer.--(1) Within fourteen days of the public announcement made under regulation 9 or 10, the acquirer shall through a merchant banker submit the draft of a letter of offer to the Board for its approval. (2) The acquirer shall along with the letter of offer referred to in sub-regulation (1) make payment of a fee to the Board for a sum of Rs. 25,000 payable either by cheque or bank draft in favour of the Securities and Exchange Board of India at Bombay. (3) The merchant banker shall submit a due diligence certificate to the Board stating that the statements made in any documents advertisement or brochure issued to the public contains statements, which are true to the best of his or its knowledge. 18. Record date.--(1) The letter of offer shall be sent to all the shareholders of the company whose shares are sought to be acquired and whose names appear on the books of the company as on the record date. (2) The record date shall be not more than the sixtieth day from the date of the first public announcement. 19. Minimum offer price.--(1) An offer to acquire shares under regulation 9 or regulation 10 shall be made at a minimum offer price which shall be:-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open for a period of not less than four weeks from the date of the offer. (4) The directors of the company of which the shares are being acquired shall not sell or enter into an agreement for sale of assets not being sale or disposal of assets, in the ordinary course of business, of the company or its subsidiaries or issue any authorised but unissued securities carrying voting rights during the period, when the offer is open for acceptance unless the approval of the general body of shareholders is obtained. (5) Every document issued to shareholders or any advertisement published in connection with the offer must state that the directors in case the acquirer, is a company, accept the responsibility for the information contained in the document or advertisement: Provided that if any of the directors desire to exempt himself from the responsibility of the information in such document or, as the case may be, the advertisement, the document or, advertisement, as the case may be, shall contain a statement to that effect together with reasons thereof. (6) The company whose shares are being acquired shall furnish to the acquirer, within seven days of the request of the acquirer, a list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the offers received from the shareholders on a proportional basis. 22. Completion of the offer.--The acquirer shall within a period of four weeks from the date of the closure of the offer complete all procedures relating to the offer including payment of consideration to the share-holders who have accepted the offer. 23. Competitive acquisition.--(1) Any person other than the acquirer making a public announcement may, within two weeks of such announce-ment, make a competitive bid for acquisition. (2) The provisions of this chapter shall mutatis mutandis apply to the competitive bid made under sub-regulation (1): Provided that the period of offer in the public announcement shall not in any case extend beyond that of the first offer mentioned in sub-regulation (3) of regulation 20." Regulations 37 and 39 are relevant which read as under : "37. Communication of findings, etc.--(1) The Board shall after considera-tion of the investigation report communicate the findings to the person concerned to give him an opportunity of being heard before any action is taken by the Board on the findings of the investigating authority. (2) On receipt of the explanation, if any, from the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the provisions of law, not less than 10 per cent but not more than 51 per cent of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concept with him, additional shares or voting rights entitling him to exercise more than 2 per cent of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. (2) No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise more than 51 per cent of the voting rights in a company, unless such acquirer makes a public announcement to acquire share of such company in accordance with the Regulations." 43. It will be seen that the concept of indirect acquisition of shares was brought in by amending the definition of 'acquirer' to mean any person who directly or indirectly acquires or agrees to acquire shares for voting rights in the target company. The words 'directly or indirectly' were also incorporated in the definition of 'person acting in concert'. Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing factors: (a)the negotiated price under the agreement referred to sub-regulation (1) of regulation 14; (b)the highest price paid by the acquirer or persons acting in concert with him for acquisitions including by way of allotment in a public or rights issue, if any, during the twenty-six week period prior to the date of public announcement; (c)the price paid by the acquirer under a preferential allotment made to him or to persons acting in concert with him, at any time during the twelve month period upto the date of closure of the offer; and (d)other parameters including return on net worth, book value of the shares of the target company, earning per share, price earning multiple vis-a-vis the industry average. Explanation.--(i ) For the purpose of this clause, shares will be deemed to be infrequently traded if on the stock exchange, the annualised trading turnover in that share during the preceding 6 calender months prior to the month in which the public announcement is made is less than two per cent (by number of shares) of the listed shares. For this purpose, the weighted average number of shares listed during the said six months period may be taken. (ii) In case of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be acquired.--(1) The public offer shall be made to the shareholders of the target company to acquire from them an aggregate minimum of 20 per cent of the voting capital of the company: Provided that where the open offer is made in pursuance to sub-regulation (2) of regulation 11, the public offer shall be for such percentage of the voting capital of the company as may be decided by the acquirer. (2) Where the offer is conditional upon minimum level of acceptances from the shareholders as provided for in clause (xviii) of regulation 16, the provisions of sub-regulation (1) of this regulation shall not be applicable, if the acquirer has deposited in the escrow account in cash a sum of 50 per cent of the consideration payable under the public offer. (3) If the public offer results in the public shareholding being reduced to 10 per cent or less of the voting capital of the company, or if the public offer is in respect of a company which has public shareholding of less than 10 per cent of the voting capital of the company, the acquirer shall either,-- (a)within a period of 3 months from the date of closure of the public offer make an offer to buy out the outstanding shares rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffs was a personal action and not a derivative action. The right to claim rectification of register of members of the company was common law right and, therefore, the plaintiffs could maintain a suit for rectification of register of members. (e)The plaintiffs have a prima facie right to maintain the present suit to seek a declaration that the acquisition of the disputed shares was void being in breach of the concerned Regulations. On these findings, the learned Judge made the notices of motion absolute in part as earlier noticed. 45. At this stage, it is necessary to notice the objection taken by defendant Nos. 1 and 11 in Notice of Motion No. 3120 of 1997 to the effect that this Court did not have jurisdiction to try, entertain and dispose of the suit. It was submitted on behalf of the defendant Nos. 1 to 11 that so far the question of registration or non-registration of shares is concerned, the plaintiffs could approach the CLB under section 111A of the Companies Act, which was the competent forum to go into such matters. Similarly, the allegations regarding violation of the SEBI Regulations could have been gone into by the SEBI which was the competent authority to go into tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was seized of the matter. He, therefore, insisted that the defendants must agree to an issue being framed on the question of jurisdiction and the same be tried as a preliminary issue or, alternatively, the defendants must agree not to press the issue in the manner in which it is worded in para 1(g) of the Affidavit-in-Reply of defendant No. 11, which is as follows: "This Hon'ble Court does not have jurisdiction to try, entertain and dispose of the suit." 47. In view of the objection of Mr. Nariman, the defendants filed a joint affidavit of defendant No. 1 and defendant No. 11, affirmed on 16-3-1999, stating that for the reasons contained therein, the submission was not being pressed. Referring to clause (g) of para 1 of the Affidavit dated 21-12-1998, in reply to Notice of Motion No. 3120 of 1997 and para 1A of the Reply dated 21-12-1998 in Notice of Motion No. 3932 of 1998 it was clarified that if the company had filed the present suit, the defendants could and would have contended that the jurisdiction of this Court is ousted in view of section 111A(2) and (3). Since the plaintiffs as shareholders had filed the suit alleging violation of civil rights, such a suit can be filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Defendant No. 12, by the defendants. He submitted that the facts of the case would disclose that there was no violation of the 1994 Regulations which govern the transactions. His first main submission in this regard is that regulation 10(1) of the said Regulations refers to the acquisition of 'further shares' by 'an acquirer who holds shares' having ten per cent or less of voting rights in the capital of the company. He submitted that since the defendant-companies which acquired the shares of Herbertsons (Defendant No. 12) did not hold any shares in that company, regulation 10 is not at all attracted, since those regulations would apply only to the case of acquirer who already held shares in the capital of the company. In other words, regulation 10 will not apply to an acquirer whose name is not present in the register of the company as a shareholder. Secondly, it was submitted that defendant No. 11 when he took control of Imfa and Mahameru, (Defendant Nos. 3 and 4 respectively), he acquired shares of unlisted companies which had already acquired the shares of Herbertsons Ltd., Defendant No. 12. The 1994 Regulations did not cover the concept of 'indirect acquisition', which was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to five specified categories of persons and only on the grounds specified in section 111A. 49.3 The contention of the plaintiffs that the purchase of shares by the appellants and the resultant take over arising out of the voting in a particular manner are two parts of a contract, and that it is the latter part which remained to be completed, is not sustainable. Section 23 of the Indian Contract Act could not be applicable because a transfer of title between the transferor and the transferee of shares is effective from the date of transfer. There was no justification for splitting of such transaction into -- (i)property rights in the shares; and (ii)right to vote on the strength of the shares. The contract is performed and executed and no part of the contract remains executory, once the transferor delivers the share certificate with transfer forms to the transferee. In any event, even if the shares are purchased in contravention of the SEBI Regulations, that would not make the purchase void. Section 23 of the Indian Contract Act applies only to executory contracts and not to transfers which are concluded or acted upon in pursuance of such contract. 49.4 Having regard to the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the intention of the Legislature is that the pending proceedings shall not continue, but fresh proceedings may be initiated under the provisions. The savings clause in the 1997 Regulations does not keep alive any obligation that an acquirer may have incurred (if any) under the 1994 Regulations. This would include an obligation to make a public offer, which in the 1994 Regulations are obliterated, except to the extent and in the manner saved under the provisions of regulation 47 of 1997 Regulations. (3) The show-cause notices issued by the SEBI alleging that defendant Nos. 1 and 11 were acting in concert are not evidence of the fact that the statutory body has taken a prima facie view that the 1994 Regulations have been violated. Any prima facie conclusion reached by the SEBI in the said show-cause notices are of no assistance to the plaintiffs or relevant for the purpose of the proceedings in the Court since the allegations contained therein cannot be deemed to be final and cannot be referred to in collaterial proceedings. A show-cause notice cannot be equated with an order which has attained finality. Reliance placed on these show-cause notices was, therefore, misplaced. (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants in other appeals have adopted the arguments advanced by Mr. Chidambaram and Mr. Desai. 53. Mr. Nariman, appearing on behalf of the plaintiffs in all the appeals replied to the submissions advanced on behalf of the appellants-defendant, and submitted that the impugned order passed by the learned Judge ought not to be interfered with as it is perfectly in accordance with law, and based on material on record. He submitted, inter alia: (1) That the facts on record disclose that defendant Nos. 1 to 11, acting in concert with each other and with the remaining defendants, acquired shareholding in excess of 10 per cent of Herbertsons, defendant No. 12, in blatant disregard and violation of the 1994 Regulations. These transactions are void and defendant Nos. 1 to 11 cannot claim any right based on such acquisition of shares which is void in law, being in breach of the 1994 Regulations, particularly Regulation 10 thereof. (2) In view of the provisions of section 9A of the Code of Civil Procedure, as amended in its application to the State of Maharashtra, any issue relating to the question of jurisdiction had to be raised at the interim stage as preliminary issue and was required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of litigation, or which has some connection with the reliefs sought, or has an immediate and necessary relation to the equity sued for. The Court is not concerned with the plaintiffs general conduct. In the instant case, the allegations made by the defendants relate to matters which are not subject-matter of the litigation nor do they have any relationship with the equity sued for. Moreover, those matters are pending before the appropriate authorities, and, therefore, it would not be proper for this Court to express any opinion on those matters. (8) The trial Court being satisfied that the plaintiffs had a prima facie case, and having regard to the balance of convenience and irreparable injury that may be caused, has rightly passed an order freezing the voting rights in respect of the shares acquired by the defendant Nos. 3, 4 and 5. The order passed by the trial Judge cannot be characterised as unprecedented because such an order can be passed in law. He referred to some decisions of American Courts, not as binding precedents, but only to establish that such freezing orders have been passed by the American Courts. In any event, such an order can be passed by the CLB even un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Act shall be in addition to, and not in derogation of the provisions of any other law for the time being in force. 55. The regulations framed by the SEBI came into force with effect from 7-11-1994. Regulation 3 makes the provisions of Chapter III of the regulations inapplicable to acquisition of shares in companies whose shares are not listed on any stock exchange. Regulation 4 empowers the Board to grant exemption from the provisions of Chapter III after recording the reasons in writing for grant of such exemption. Chapter II deals with disclosures of shareholding. Regulation 5 provides that any person who holds more than five per cent shares in any company, shall within two months of notification of the regulations disclose his aggregate shareholding in that company to all the stock exchanges on which the shares of the said company are listed and to the aforesaid company. The company whose shares are held by such persons are also required to disclose to the stock exchange within two months the aggregate number of shareholdings of each of such acquirer. Regulation 6 deals with an acquirer who holds five per cent or less than five per cent shares in a company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of shares from the open market. Regulation 10(1) prohibits an acquirer who holds shares carrying ten per cent or less of voting rights in the capital of the company from acquiring any further shares in the company from the open market which, when taken together with his existing shareholding, would carry more than ten per cent of the voting rights, unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with the regulations. Similarly, an acquirer who, on the date of commencement of the regulations, holds shares which carry more than ten per cent of the voting rights in the capital of the company is prohibited from acquiring any further shares in the company unless he makes such a public announcement. By definition an 'acquirer' includes persons acting in concert with the acquirer. These provisions clearly spell out the objective sought to be achieved by the regulations, viz., to bring about transparency in the dealing of securities particularly in relation to take-overs as also to ensure a fair return to a shareholder of the company in case of such acquisition taking place. The public announcement referred to in Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt in the public shareholding being reduced to less than 20 per cent of the voting capital of the company. Under regulation 23, any person, other than the acquirer making a public announcement, may within two weeks of such announcement, make a competitive bid for acquisition, and to such a bid, the provisions of Chapter III shall mutatis mutandis apply. This, again, is designed to protect the interest of the investor, ensuring him a better price for his shares, if possible. Regulation 33 in Chapter V empowers the Board to appoint one or more persons as investigating authority to investigate and undertake inspection of the books of account, other records and documents of any person who may have acquired or sold securities to any person for any of the purposes specified in sub-regulation (2). The investigation has to be done after giving reasonable notice to the person concerned. After the investigating authority has submitted its report to the Board, the Board shall communicate the findings to the person concerned, and give him an opportunity of being heard before any action is taken by the Board on the findings of the investigating authority. On receipt of the explanation, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation may call for a judicial filling up with a view to dealing with situations and circumstances that may emerge after enacting a statute, not within the imagination of the Legislature, when its application may be called for. If the words are plain and clear, no difficulties arise, but where a statutory provision is open to more than one interpretation, it becomes the duty of the Court to so interpret the provision that without doing any violence to the language of the statute, it is given its true meaning as may have been intended by the Legislature, having regard to its context, the object which the statute seeks to achieve, and the mischief it seeks to avoid. Definitions given in the statute more often than not assist the Court in giving meaning to a provision, but definitions are always made subject to the context, and therefore, reading the statute as a whole, contextual interpretation may at times widen or narrow the definition. The process of construction, therefore, combines both literal and purposive approaches. We are tempted to quote from the judgment in RBI v. Peerless General Finance & Investment Co. Ltd. AIR 1987 SC 1023, where Justice O. Chinnappa Reddy, spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares of the target company over which defendant No. 11 gained control indirectly as a result of their take-over. Thirdly, in the facts of the case, there was no obligation to make a public announcement or public offer. Lastly, having regard to the pattern of shareholding in Herbertsons, defendant No. 12, a public offer was futile as it would have resulted in public shareholding being reduced to less than 20 per cent of the voting capital of the company, a consequence expressly prohibited by regulation 21(4). 61. It is not disputed before us that the acquisition of shares by defendant Nos. 3, 4 and 5 (except 54,000 shares purchased by defendant No. 3) were made from the open market when the 1994 Regulations were in force, before their repeal by the 1997 Regulations on 20-2-1997. We may also notice that the aforesaid Defendants acquired the shares, not by one transaction but by a series of transactions spread over several months. Defendant No. 3 acquired shares representing about 10.91 per cent of the equity share capital of the defendant No. 12, Herbertsons, while the defendant Nos. 4 and 5 acquired 4.97 per cent and 3.83 per cent respectively. It is also not disputed that the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and purpose so as to suppress the mischief and advance the remedy. He relied upon the decision of the Supreme Court in NEPC Micon Ltd. v. Magma Leasing Ltd. AIR 1999 SC 1952. The Apex Court was considering penal provisions viz., sections 138 and 140 of the Negotiable Instruments Act, 1881. Noting the submission that section 138 being a penal provision, it should be strictly interpreted and if there is any omission by the Legislature, wider meaning should not be given to the words than what is used in the section, it was observed that even with regard to penal provisions, any interpretation, which draws life and blood of the provision and makes it ineffective and a dead letter should be averted. If the interpretation, which is sought for, were given, then it would only encourage dishonest persons to issue cheques and before presentation of the cheques, close that account and thereby escape from the penal consequences of section 138. A passage from Kanwar Singh v. Delhi Administration [1965] 1 SCR 7 was referred to which reads as follows: "It is the duty of the Court in construing a statute to give effect to the intention of the Legislature. If, therefore, giving a literal meaning t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trieving the property of the company. It is the duty of the Court to place a broad and liberal construction on the provision in furtherance of the object and purpose of the legislation which would suppress the mischief and advance the remedy. After a full discussion, their lordships held that the term 'officer or employee' of a company included not only the existing officers or employees but also past officers or employees. 63. In Directorate of Enforcement v. Deepak Mahajan [1994] 3 SCC 440, the Apex Court was called upon to interpret section 167 of the Code of Criminal Procedure, 1898. After referring to the authorities on the subject, Their lordships observed thus: "31. True, normally courts should be slow to pronounce the Legislature to have been mistaken in its constantly manifested opinion upon a matter resting wholly within its will and take its plain ordinary grammatical meaning of the words of the enactment as affording the best guide, but to winch up the legislative intent, it is permissible for courts to take into account of the ostensible purpose and object and the real legislative intent. Otherwise, a bare mechanical interpretation of the words and application of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n existing shareholding in the company, meaning thereby that the acquirer must be one whose name is present on the register of the company as a shareholder/member. He emphasised the fact that regulation 10 does not prohibit the acquisition of any shares, but only prohibits the acquisition of 'any further shares'. The use of the word 'further' presupposes the existence of a prior shareholding, in the absence of which regulation 10 is not attracted. The same principle applies to regulation 6. He submitted that in Fascinating Leasing 1998 (17) SEBI and Corporate Laws 204, such a construction has been accepted by the Tribunal. He further submitted that in regulation 10(1), it would not be permissible to read the words 'if any' after the words 'existing shareholding'. According to him, the words 'if any' did not appear in 1994 Regulations and were brought in later by the 1997 Regulations. The privilege of a member can be exercised only by that person whose name is recorded in the Register of Members, and, hence, he alone could be called a 'holder of the shares' or 'a holder'. He, therefore, concluded that the expressions 'member', 'holder of a share' and a 'holder', are synonyms, and fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant claimed in Income-tax assessment proceeding that these shares, although not registered in the name of the applicant were the property of the applicant and, therefore, dividend income should be grossed up under section 16(2) and credit for the tax deducted should be allowed to the applicant under section 18(5). The Court noticed the fact that where shares are sought to be transferred under blank transfers, unless the transfers are registered by the company, the company recognises no person except the one whose name is on the register of members. Of Course, between the transferor and the transferee, certain equities arise even on the execution and handing over of blank transfers, and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee. These equities, however, do not touch the company. The scheme of the Indian Companies Act shows that the words 'member', 'shareholder', and 'holder of a share' have been used interchangeably in that Act. The transferee has a right to call upon the company to register his name and no more. No rights arise till such registration t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission urged on behalf of the defendants that under the Act, the expressions 'a member', 'a shareholder' or 'a holder of a share' are used as synonyms to indicate the person who is recognized by a company as its owner for its purposes. The question still remains whether in the context of the regulations, the same meaning must be assigned to the expression 'a holder of a share'. 67. On the other hand, Mr. Nariman relied upon a decision of the Privy Council in Bank of India Ltd. v. Jamsetji A.H. Chinoy 77 IA 76. In that case, a question arose whether the agreement for sale, which was, admittedly, made without the permission of the RBI, contravened rule 93 of the Rules made under the Defence of India Act, 1939. Mr. Nariman placed reliance on a paragraph appearing at page 90 of the report which reads as follows: "For the defendants it was contended that to agree to purchase was to 'acquire' within the meaning of rule 93(2). Both courts in India were of opinion that this submission was ill-founded, and their Lordships agree with that view. It was conceded that in India a contract for the sale of shares does not, of itself and in the ordinary course of events, create an equitable int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression of the minorities when the member is dead and his heirs or legal representatives are yet to be substituted. This is an equitable and just construction. This construction, as suggested by Pennycuick J., does not militate against either equity or justice. We would, therefore, adhere to that constructions. In this connection, it may be mentioned that, in the 1972 edition of Gore-Browne on Companies, it has been stated as follows (p. 798): 'It has recently been settled that the personal representatives of a deceased member, even though they are not registered as members, are entitled to present a petition under section 210. In Jermyn Street Turkish Baths Ltd., In re [1970] 3 All ER 57, Pennycuick J., held that on its true construction, section 210 required that the word 'member' should include the personal representatives of a deceased member, on whom title of his shares devolved by operation of law.' " Later in the judgment, the Court observed: "In some situations and contingencies, a 'member' may be different from a 'holder'. 'A 'member' may be a 'holder' of shares but a 'holder' may not be a 'member'. In that view of the matter, it is not necessary, for the present purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, possible to give to the words 'who holds shares' a meaning different than the one assigned to it under the Act as including a person who holds the shares by reason of his having purchased the same with a right of registration of those shares on the strength of the blank transfer forms, but in whose favour the shares have not actually been registered. The question that arises is whether in the scheme of the 1994 Regulations the words 'who holds shares' must be given a narrow meaning as canvassed by Mr. Chidambaram or the wider meaning so as to include the holder of a share whose name is not on the register of members. 69. In our view, on a contextual and purposive interpretation, and having regard to the object sought to be achieved by the Act and the regulations, the words 'who holds shares' must be given a construction so as to include a person who holds shares with a right to get his name registered as a member, but whose name has not actually been entered in the register of members. If such a meaning is not given to those words, the consequence will be that while a person who holds shares will be required to comply with regulations 9 and 10, but one whose name does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by negotiations (under regulation 9) under MOU and not by a series of purchases in the open market. So far as acquisition of Imfa is concerned, it did not purchase 10.91 per cent of the shares in one transaction. By separate transactions, the shares were purchased between 27-10-1994 and 21-11-1995. The very fact that they were lodged in one lot does not detract from the fact that Imfa, after the initial purchase, was a 'holder of the shares' under regulation 10(1) and, therefore, could not purchase shares in excess of 10 per cent without first making a public offer. Mr. Nariman submitted that the Tribunal in Sharad Doshi v. Adjudicating Officer (decided in April 1998) held that holder in the regulations means a person who has acquired shares notwithstanding that they are not registered. 71. There is substance in the submission urged by Mr. Nariman, Fascinating Leasing & Finance P. Ltd.'s case (supra) is not a binding precedent so far as this court is concerned. We have already held that the words who holds shares in the 1994 Regulations include an acquirer who has acquired the shares by purchase under a blank transfer with a right of registration but who has not actually got the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 and 11 in concert with the other defendants to acquire the shares of Herbertsons Ltd., defendant No. 12. The real purpose was not the acquisition of the three unlisted companies viz., defendant Nos. 3 to 5, but to acquire shares which were held by these companies and purchased with the help of funds provided by the defendant Nos. 1 and 11 and the companies controlled by them. If it is held that the Defendants were acting in concert, it must be held logically that even when the defendant Nos. 3 and 5 acquired the shares of Herbertsons, the acquisition was in concert with the defendant Nos. 1 and 11 as well as the other defendants. In other words, defendant Nos. 3 to 5 acquired the shares of Herbertsons directly, while acting in concert with the other Defendants, some of whom provided the funds for such acquisition. 74. It is true that in view of regulation 3(d), Chapter III of the regulations does no apply to acquisition of shares in companies whose shares are not listed on any stock exchange. Defendant Nos. 3 to 5 companies, undoubtedly, are companies whose shares were not listed on any stock exchange. It would, therefore, follow that, if without anything else, the shares of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Co. Ltd., was alleged to be in violation of the SEBI Regulations, and in violation of the provisions of clauses 40A and 40B of the listing agreement. In that case, it was found that after the regulations came into force, no acquisition of shares in Sesa Goa took place. It was in this context that the following observations were made in the order: "Assuming that what the petitioners have contended is correct and Mitsui, Early Guard and Finco are persons acting in concert under the Regulations, the fact remains that no shares of Sesa Goa have been acquired either by Finco, Mitsui or Early Guard. Sesa Goa is the company which is said to have been taken over. However, this change in control, if at all, has taken place without acquiring any shares. Even if interpretation of the petitioner is accepted, the provisions of the Regulations dealing with substantial acquisition of shares could not be applicable in the facts of the case. It is worth mentioning that the Regulation does not have any concept of change in the control of management requiring public offer. Therefore the question of violation of Regulations does not arise. It may be mentioned that these Regulations have now bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the facts and circumstances of this case that was not relevant in view of the fact that the Defendants were acting in concert with each other, and therefore, on a purposive interpretation whether acquisition was direct or indirect is immaterial. 78. We are inclined to agree with Mr. Nariman. We have already recorded our conclusions earlier. As far as indirect acquisition is concerned, in the facts and circumstances of this case, if it is held that the Defendants were acting in concert with each other, each one of them must be deemed to be an acquirer, and the question of direct or indirect acquisition does not arise. 79. Relying upon the judgment of the Supreme Court in Md. Quasim Larry v. Muhammad Samsuddin AIR 1964 SC 1699, Mr. Nariman submitted that in the 1997 Regulations, there are at least three matters in regard to which the regulations are merely clarificatory and declaratory. In this regard, he referred to - (i) definition of 'acquirer' which has been defined to mean any person who directly or indirectly acquires or agrees to acquire shares for voting rights in the target company or acquires or agrees to acquire control over the target company either by himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the remaining shareholders was only 37.46 per cent. If Imfa was required, by virtue of the regulation 21(2) to acquire a minimum of 20 per cent, there will not be left in the market a public shareholding of 20 per cent which is the requirement under regulation 21(4). The submission is attractive but devoid of merit. The submission overlooks regulation 21(2) which provides that the public offer shall be made 'to the remaining shareholders of the company' to acquire from them an aggregate minimum of 20 per cent of the total shares of that company. This clarifies that the offer has to be made to the remaining shareholders of the company which means all the shareholders other than the acquirer. In the instant case, if it is assumed that Imfa was acting in concert with the other defendants, then the shareholding of the acquirer was 10.91 per cent plus 25.97 per cent, i.e., the total shareholding of the acquirer was 46.88 per cent. Mr. Chidambaram has erroneously included as shareholding of the acquirer the shares held by Vijay Mallya to the extent of 25.66 per cent. For the purposes of public offer to be made by the acquirer, viz. Imfa or persons acting in concert with Imfa, the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction period, when the acquisition of the shares takes place, both the acquirer and the person acting in concert with him should acquire shares in the open market. He relied upon the meaning of the word 'with' in Black's Law Dictionary, Vth Edn., and submitted that word means 'in association' or 'in addition to'. He, therefore, submitted that when the defendant Nos. 3, 4 or 5 acquired shares, the defendant No. 11, M.D. Chhabaria did not acquire any shares in his name during the transaction period or at any time. On facts, he submitted that the allegation of acting in concert has not been made out by the plaintiffs. The expression 'person acting in concert' has been defined as comprising persons who, pursuant to an agreement or understanding acquire or agree to acquire shares in a company for a common objective or purpose of substantial acquisition of shares. We have earlier reproduced this definition in their judgment, and it is not necessary to repeat the same. According to Mr. Chidambaram, the essential ingredients are: (a)Persons must act pursuant to an agreement or understanding; (b)There must be a target company; (c)They must have a common objective or purpose for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1). The aforesaid companies were owned by K.R. Chhabria, defendant No. 1 and not M.D. Chhabria, the defendant No. 11. Referring to the letter written by D.F. Lalla, Managing Director of Herbertsons Ltd., the defendant No. 12, the Chief Editor of Asian Age, dated 5-5-1995, it is submitted that in the said letter, the company refuted the statements made in an article in connection with the acquisition of over 12 per cent stock in Herbertsons Ltd., by Kishore Chhabria, defendant No. 1, in addition to his existing 26 per cent shareholding in the company. The company emphatically stated that the allegations made therein were totally untrue, and baseless. The letter refers to 25 per cent holding in the company of Kishore Chhabria. Similarly, in two other letters dated 17-7-1995 and 6-9-1995, the Managing Director of the Herbertsons Ltd., the defendant No. 12, had written to SEBI that K.R. Chhabria had not acquired substantial voting rights in the company and, therefore, there was no occasion for the company to comply with the relevant provisions of the 1994 Regulations. In the letter addressed to the SEBI dated 6-9-1995, the Managing Director of Herbertsons Ltd., had annexed thereto Anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant. The mere fact that they were taken over by the defendant No. 11 on account of their failure to repay the loans advanced to them, did not necessarily lead to the inference that they were acting in concert with the defendant No. 11 or any of the other defendants. 85. Mr. Nariman, on the other hand, submitted that the defendant Nos. 1 to 11 were always acting in concert with the acquisition of shares of the defendant No. 12 company. He has taken us through the record to explain the nature of transactions entered into by the several defendants. He submitted that even the initial acquisition of about 27 per cent shares in December 1993, before the regulations came into force, was the result of concerted action of the defendant Nos. 1, 11 and the companies under their control through the ultimate holding company, viz., Galan Finvest P. Ltd. Having acquired about 27 per cent shares through the companies under their control, viz., the defendant Nos. 2 and 6 to 10, the defendant Nos. 1 and 11, acting in concert with companies under their control, proceeded to acquire further shares in Herbertsons Ltd., even after the 1994 Regulations came into force. He submitted that the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The defendants were not at all misled by the statements made in the plaint about the approximate dates of those transactions because, they were in the knowledge of all facts relevant to those transactions. 88. In reply to the submission of Mr. Chidambaram that no particulars have been mentioned about the agreement said to have been reached between the several defendants, said to be acting in concert, and fact that no agreement or understanding was pleaded, Mr. Nariman submitted that it is not always possible for a plaintiffs to give such particulars. Such plans are drawn up in secrecy so that it may not be possible for a stringer to specifically and accurately give particulars of the agreement reached, time and place, etc. Relying upon the judgment of the Supreme Court in CIT v. East Coast Commercial Co. Ltd. AIR 1967 SC 768, he contended that no direct evidence of overt act or concert between the members of the group having control over voting rights is always available. He relied upon the observations of the judgment wherein it was observed-- "(13) But in CIT v. Jubilee Mills Ltd. [1963] 48 ITR 9 (SC) this Court held that no direct evidence of overt act or concert between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cult to obtain and is not insisted upon. He further submitted that policy of the law cannot be defeated by ingenious devices, arrangements or agreements, and in this context, he relied upon the judgment of the Supreme Court in McDowell & Co. Ltd. v. CTO AIR 1986 SC 649, wherein Justice O. Chinnappa Reddy, agreeing with the judgment of Justice Ranganath Misra observed-- "...We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretense to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be constructed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. v. Bengal Hotels Ltd. [1977] 47 Com. Cas. 597 (Guj.) where the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it for breach of contract on his failing or refusing to relinquish such lands. All such devices, arrangements, and agreements are in contravention of the policy of the Act and are contrary to law and are illegal and void; and cannot be enforced by the vendee in any Civil Court or in any Court of revenue." 89. Mr. Nariman submitted that the ingenuous device adopted by the defendant Nos. 1 and 11, acting in concert with the companies under their control should not mislead this Court into thinking that the series of transactions entered into by them and the companies under their control were independent transactions by way of investment, and not pursuant to a common plan for the acquisition of substantial shares in Herbertsons Ltd., with a view to its ultimate take over. He submitted that from the facts on record, it would appear that the defendant Nos. 1 and 11 had worked out a plan to acquire substantial shares in Herbertsons Ltd., and in the execution of that plan, they acted in concert with the companies under their control. From the facts established on record, the only inference that must follow is that they, together with the companies under their control, acted in concert in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control substantial shareholding of Herbertsons Ltd. Both were directors of the holding company. In fact, in November 1996, the defendant No. 11 increased his shareholding in Galan Finvest P. Ltd., to 50 per cent by acquiring 30 per cent shares held by the defendant No. 1. The circumstance which emerges from these facts is that the defendant Nos. 1 and 11 were the major shareholders of Galan Finvest P. Ltd., which through its subsidiaries acquired 27.21 per cent of the shareholding of Herbertsons Ltd., even before the 1994 Regulations came into force. One other circumstance worth nothing is that Mr. Ram Raheja, wife's sister's husband of K.R. Chhabria, the defendant No. 1 was also a director of Galan Finvest P. Ltd., apart from defendant No. 1 and the defendant No. 11. 91. Mr. Nariman emphasised the fact that pursuant to Board Resolution of Imfa dated 18-10-1994, 'to invest in the purchase of up to 11 lakh equity shares of Rs. 10 each in the capital of Herbertsons Ltd.', 10,39,341 shares of Herbertsons Ltd., were acquired in separate lots at different times in the open market between 27-10-1994 and 21-11-1995 in the name of Imfa Holdings P. Ltd., the defendant No. 3. This was done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent shares respectively, and after November 1996, they held 50 per cent shares each. The Chhabrias, acting through Galan Finvest P. Ltd., and the companies controlled by them provided funds to the extent of Rs. 1.31 crores to Imfa Holdings P. Ltd., which was a company controlled by Ram Raheja, the co-brother of the defendant No. 1 some amount was also made available by a company controlled by M.D. Chhabria, the defendant No. 11. Mr. Nariman then submitted that the nature of transaction entered into with Imfa Holdings P. Ltd., does not appear to be a purely business transaction by way of investment, as submitted by Mr. Chidambaram, on the advice given by a professionally qualified Chartered Accountant Mr. Ashok Kukreja. Though the loans were said to be secured by issue of zero rated debentures, as would appear from the report of the Directors for the years 1995, 1996 and 1997 of Imfa Holdings P. Ltd., the debentures were never issued. Moreover, the only quoted investment of Imfa Holdings P. Ltd., as shown in the balance sheet were the shares held by Imfa Holdings P. Ltd., in Herbertsons Ltd. Though the advice of Mr. Ashok Kukreja was obtained, it appears that Mr. Kukreja was a clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investment was similar. Interest-free loan, without any security and without any stipulated period of repayment, was advanced by the defendant No. 11 through his proprietary concern (Royal Wines) to the tune of Rs. 1.12 crores. In his affidavit dated 27-1-1999, filed in reply to the second notice of motion, the defendant No. 11 claimed that the amount advanced by him to the defendant No. 4 was Rs. 2.8 crores. Before the shares were lodged with the company, Mrs. A.M. Kakade and Sanjay Masand became directors of the Defendant No. 4 on 2-9-1996, and acquired control of Mahameru Trading Co. P. Ltd. Mrs. Kakade is the wife of M.G. Kakade, who was at all relevant times director of the defendant Nos. 8 and 9. All the shares were lodged for registration at one time on 10-9-1996, and the same were actually transferred on 26-9-1996. It is also not in dispute that the share capital of Mahameru Trading Co. P. Ltd., was only Rs. 200. Since the defendant No. 4 was unable to repay the loan, its entire share capital was sold to Seven Star Investment & Trading Co., a company of M.D. Chhabria, defendant No. 11, on 13-2-1997. It is the case of the defendants that the dealings with Mahameru Tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wife. Despite the fact that the company was unable to repay the loans, S.J. Chhabria continued as a director of the defendant No. 5 almost up to April 1998. In this case also, it was urged by Mr. Chidambaram that funds were advanced to the defendant No. 5 on the basis of the advice received from Mr. Kukreja, a professionally qualified Chartered Accountant, and he had clearly advised them to the effect that the funds should be paid to a company which is under the control of S.J. Chhabria, and not to him personally. This company had been incorporated only on 19-8-1996 with a paid up share capital of Rs. 200. In this case also, zero rated unsecured FCDs were never issued. Mr. Nariman submitted that the defendant Nos. 1 and 11 had made identical declaration on 17-4-1997 under regulation 6(3) of 1997, which required a promoter or any person having control over a company to disclose the number and percentage of shares or voting rights held by him, and of persons acting in concert with him in that company, to the company. He submitted that the names of the defendant Nos. 2 to 10 were mentioned in those declarations and, therefore, their declarations made it clear that the defendant Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n over by M.D. Chhabria (allegedly for their default in repayment of the 'loans'). (d)The alleged advice of Kukreja/Mitra even if implemented, would have given no security for the loans advanced because there was no control over the shares acquired by the three companies. K.R. Chhabria and M.D. Chhabria were contend with this position and this could only be on the footing that they already owned and/or controlled the said three companies and the shares of Herbertsons Ltd., acquired by them. 96. It was also submitted by Mr. Nariman that the case pleaded by the defendants that the funds advanced to the defendant Nos. 3, 4 and 5 were in the nature of bona fide investment was not convincing because, in that event, the investment could have been made through one's own investment company, and not through allegedly arms-length companies. According to him, giving of interest-free loans with no return at all could hardly be considered to be an investment. The genuineness of the transactions was also doubtful because it does not appear that the creditors, at any time, called upon the debtors for the repayment of the loans. In case such a demand was made, it was open to the debtor companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these facts, that the amounts advanced to the defendant Nos. 3, 4 and 5 companies were not for the purpose of investment, and despite the declarations of defendant No. 11 that he was not interested in taking over the management of Herbertsons Ltd., the real purpose for which these advances were made was to acquire the shares of Herbertsons Ltd., through unlisted Companies. If the shares were purchased only as a matter of investment, they should have been sold when the market was favourable, but that was not done, and instead, the defendant No. 11 took over the three investment companies along with the shares of Herbertsons Ltd. The medium of unlisted companies was employed deliberately with a view to avoid the requirement of making a public announcement since the 1994 regulations did not apply to unlisted companies. 97. We are satisfied that the circumstances established on record prima facie do lead to the inference that the defendant Nos. 1 and 11, acting in concert with the defendant Nos. 2 to 10, acquired the shares of Herbertsons Ltd., over a period of time. Since they were acting in concert, the acquisition by each one of them must be considered to be the acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., those companies invested any sizable amount in shares of other companies, except in one case, where some shares of one other company were purchased. It, therefore, appears that these three companies which purported to be investment companies, invested only in the shares of Herbertsons Ltd., and that too, with the aid of funds provided by the defendant No. 1 and the defendant No. 11 through their concerns/companies. 98. Mr. Chidambaram, in rejoinder, submitted that there were circumstances to indicate that the transactions of purchaser of shares by the defendant Nos. 3, 4 and 5 were bona fide transactions entered into a transparent manner, and did not suffer from any illegality. The bona fide of the defendant No. 11, M.D. Chhabria, could not be doubted. The investment companies, viz., the defendant Nos. 3, 4 and 5 had acquired shares of Herbertsons Ltd., with their own funds also which they had procured from other sources. This, they would not have done, if funding the acquisition was the exclusive responsibility of M.D. Chhabria, the defendant No. 11. According to him, Imfa, the defendant No. 1, had acquired shares of Samudra Shoes to the extent of Rs. 60 lakhs. If, what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo Chartered Accountants. In their recommendation to M.D. Chhabria, they had suggested that the borrower must give a commitment to give minimum return of 45 to 50 per cent at the end of two years. They had suggested the issuance of zero rated unsecured FCDs with no premium. Each debenture was to be of Rs. 100 each, with a right to convert it into 10 shares of Rs. 10 each, after a period of two years. The experts expected that the FCDs issued be taken over after two years at a premium of 45 to 50 per cent before conversion, which will give an earning of 25 per cent per annum. Based on anticipation of professional experts, it was sought to be argued before us that M.D. Chhabria, the defendant No. 11, was assured a return of 25 per cent on his investment. All that can be stated is that on the basis of calculation made by the qualified Chartered Accountants, and on the anticipation that the value of the shares will rise, it was expected that he would get a return of 25 per cent per annum on his investment. The plaintiffs are, therefore, not wrong in contending that the amounts advanced carried no interest. 100. Commenting on the conduct of M.D. Chhabria, the defendant No. 11, Mr. Chid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have to be decided on evidence. What is apparent is that the acquisition of Herbertson's shares was substantially funded by the defendant No. 1, defendant No. 11 and the companies and concerns under their control. Similarly, all transactions and the events that followed lead as to hold prima facie that it was a well thought out plan to acquire shares of Herbertsons Ltd., with the parties acting in concert. On the basis of the facts on record as at present the conclusion appears to be inescapable that the defendant Nos. 1 and 11 were acting in concert with the companies under their control, viz., defendant Nos. 2 to 10 in the matter of substantial acquisition of shares of Herbertsons Ltd., the defendant No. 12. We may hasten to add that is only a prima facie view based on the material on record as they appear. The defendants are yet to file their written statement, and the parties had yet to lead evidence in support of their respective cases. A final finding of fact can be recorded only after evidence is brought on record by the parties. The conclusion reached by us is only prima facie and only for the purpose of disposal of the Notices of Motion. The material on record does esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions. Mr. Nariman submitted that in view of the statement filed on behalf of the defendant Nos. 1 and 11 that they were not pressing the question of the jurisdiction of the court, but were only submitting that having regard to these provisions, no interim relief should be granted to the plaintiffs, the defendants cannot be permitted to urge questions relating to the jurisdiction of the Court to entertain a suit and to grant relief. In particular, he submitted that the defendants should not be permitted to urge the contention that in view of the provisions of the SEBI Act and the 1994 Regulations any breach of the regulations can be looked into and appropriate order passed only by the SEBI and that the jurisdiction of Courts was barred. Similarly, the defendants could not be permitted to urge the submission that in view of section 111A, Courts had no jurisdiction to order rectification of Register of Members. These submissions were urged by him before the trial Court as well. Before us, another submission was urged by both Mr. Chidambaram and Mr. Ashok Desai, appearing on behalf of defendant No. 1, that in view of the repeal of the 1994 Regulations by the 1997 Regulations, the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adding the said section 9A, that the practice of granting injunctions, without going into the question of jurisdiction even though raised, had led to grave abuse. It was, therefore, proposed to provide that if a question of jurisdiction is raised at the hearing of any application for granting or setting aside an order granting an interim relief, the Court shall determine that question first. In paragraph 10 of the judgment. Their Lordships observed: "10. Section 9A is a departure from the procedure established for deciding the preliminary issue as prescribed under Order XIV Rule 2 of the Civil Procedure Code. On many occasions, it is not always proper to pass an order of hearing the preliminary issue with regard to maintainability of a suit at the time of final hearing of the suit. If such issue is decided at an earlier stage, rights of the parties can be crystallized. As stated earlier, section 9A is a departure from the procedure prescribed under Order XIV Rule 2 of the Code of Civil Procedure for achieving that object. For determination of the preliminary issue, which may be mixed question of law and facts, the parties are required to lead evidence. Without permitting the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of jurisdiction. Mr. Nariman, therefore, submitted that either the Defendants should back out from the statement made by them before the trial Court and invite the Court to decide the question of jurisdiction or they should not be permitted to urge the question of jurisdiction at all in the appeal. 105. Mr. Chidambaram submitted that by filing an affidavit, the defendants did not lose the right to agitate those questions as was contended on behalf of the plaintiffs. He submitted that there may be threshold bar to entertain a suit but in the given circumstances, the defendants were entitled to argue that no relief should be granted. He sought to buttress this submission by relying upon several decisions so as to distinguish between Court having jurisdiction to entertain a matter and error committed by it in the exercise of jurisdiction. He, therefore, submitted that the defendants did not object to the court entertaining the suit but submitted that it would not be proper to exercise jurisdiction to grant interim relief as prayed for. 106. He relied upon the decisions in Mohesh Chandra Dass v. Jamiruddin Mollah ILR 28 Cal. 324 ; A. Venkataseshayya v.Virayya AIR 1958 AP 1 ; Pant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that it is incorrect on merits and as such it can be claimed that the provisions of the said statute have not been complied with. Their lordships also referred to the observation of Lord Reid in Anisminic Ltd. v. Foreign Compensation Commission [1969] 1 All ER 208, wherein it was observed that it has sometimes been said that it is only where a tribunal acts without jurisdiction that its decision is a nullity. But in such cases the word 'jurisdiction' has been used in a very wide sense. It is better not to use the term except in the narrow and original sense of the Tribunal being entitled to enter on the enquiry in question. In M.L. Sethi's case (supra) the Supreme Court referred to the dicta of Lord Denman in R. v. Bolton [1841] 1 QB 66, that the question of jurisdiction was determinable at the commencement, not at the conclusion of the enquiry. In Ittyavira Mathai's case (supra) the Supreme Court observed that it is well settled that a Court having jurisdiction over the subject-matter of the suit and over the parties thereto though bound to decide right may decide wrong; and that even though it decided wrong, it would not be doing something which it had no jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be raised only if the question of jurisdiction were gone into by the Court after framing of issues and decided in favour of the defendants. We find considerable force in the submission of Mr. Nariman but since the matter has been argued at length, we shall also consider those questions separately. 109. It was submitted on behalf of the defendants that the plaintiffs did not have a civil right or any common law right to apply for rectification of shares held by a third-party in a public limited company on the ground that no public offer was made by such third-party under the SEBI Regulations. He submitted that in the present case, the plaintiffs assert that they have a right to get the register rectified in respect of the registered shares of Imfa and Mahameru, the defendant Nos. 3 and 4 on the ground that after the purchase of the shares, the acquirer did not make a public offer, as required by the SEBI Regulations. According to Mr. Chidambaram, the right asserted by the Plaintiffs is not a common law right, and in fact, such a right is created for the first time by the SEBI Regulations. Such being the legal position, there was no question of the plaintiffs seeking to establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, Mr. Nariman, appearing on behalf of the plaintiffs, submitted that a shareholder/member of the company always enjoyed the common law right to uphold the purity of the register. He referred to the authorities on the subject which have consistently upheld the right of a member of a company to seek rectification of the register of members by way of a suit. 111. Two questions arise for consideration. Firstly, whether a shareholder of a company has a common law right to seek rectification of register by way of a suit. If it is found that a shareholder has such a common law right, whether section 111A has extinguished that right. In support of his submission, Mr. Chidambaram relied upon the oft- quoted passage appearing in the opinion of Willes, J. in Wolverhampton New Water Works v. Hawkesford (1859) 6 CB (NS), 336 which reads as follows: "There are three classes of cases in which a liability might be established, founded upon statute. One is where there was a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law; there, unless the statute contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edies. 112. Similarly, in Shiv Kumar Chadha v. Municipal Corpn. of Delhi [1993] 3 SCC 161, the Court referred to the observations of Willes, J. in Wolverhampton New Water Work's case (supra), and after exhaustive consideration of the decisions of the Supreme Court and other Courts, laid down the principle in the following words: "With the increase in the number of taxing statutes, welfare legislations and enactments to protect a class of citizens, a trend can be noticed that most of such legislations confer decision making powers on various authorities and they seek to limit or exclude court's power to review those decisions. The result is that the power of the court under section 9 of the Code is being denuded and curtailed by such special enactments, in respect of liabilities created or rights conferred. This Court in the judgments referred to above has upheld the ouster of the jurisdiction of the court on examination of two questions - (1) Whether the right or liability in respect whereof grievance has been made, had been created under an enactment and it did not relate to a pre-existing common law right? (2) Whether the machinery provided for redressal of the grievance in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n enactment are exhaustive and it should be open to parties to seek for such reliefs in regular actions only in cases where the enactment can be said to create entirely a new sphere of rights and obligations, it becomes important to discuss the question in this case whether the Indian Companies Act must, having regard to its true nature, be regarded as an Act creating such a new sphere or as merely legislating for or regulating certain rights recognized under the common law. It seems to me that the true and correct view would be to regard it only as of the latter kind. By the terms of section 4, the Act declares as illegal any association or partnership consisting of more than ten persons formed for the business of banking and any company, association or partnership of more than twenty persons formed for the purpose of carrying on any other business. It is clear that the scope of the Act is regulative and it is concerned only with making provisions in respect of rights and obligations which would have existed apart from the Act. In all such cases, the true principle is that though remedies are provided in the enactment, the general right of suit cannot be considered as taken away ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the applicant to institute an action for rectification. An action may, without any direction by the court, be instituted for rectification of the register, a course which should be followed where there is much complexity, or where other relief is required." In Om Prakash Berlia v. Unit Trust of India [1983] 54 Comp. Cas. 469 , a learned Judge of this Court (Bharucha, J. as he then was), considered the submission urged before him by the plaintiffs that the right to rectify the share register of a company was the individual right of each of its shareholders, and each shareholder was entitled to have the register reflect the true position and to take action to ensure that it did. Referring to the authorities on the subject, he negatived the contention that the expression 'any member' in section 155 meant only a member who was aggrieved or who was in a position to show that some prejudice or wrong was caused to him. He held that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain a petition under section 155 of the Indian Companies Act or section 116 of the English Act, is directed to file a suit because the matter is complex, and is then told that he is not entitled to maintain the suit because he is not a person aggrieved." (p. 503) 114. Mr. Chidambaram pointed out that the judgment in Om Prakash Berlia's case (supra) was overruled by a Division Bench of this Court and, therefore, it does not lay down good law. On the other hand, Mr. Nariman submitted that the judgment was upset on another question, and not on this point. In any event, he submitted that the reasoning of the learned Judge which is consistent with the principles laid down in several earlier decisions which are binding precedents has considerable persuasive value, and he would adopt them as his argument, apart from relying upon the earlier decisions of this Court noticed in the judgment. 115. In Avanthi Explosives (P.) Ltd. v. Principle Subordinate Judge [1987] 62 Comp. Cas. 301 (AP), a question arose in the Writ Petition as to the jurisdiction of the civil court to entertain a civil suit involving the question as to the disqualification of the Director of a company under the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution under article 13 forfeiting the shares held by Respondent Nos. 1 and 2 in the company. This was because the Respondents failed to pay the call monies despite notice. Respondent Nos. 1 and 2 filed two separate applications under section 155 of the Companies Act, 1956, praying that the forfeiture be set aside and the necessary rectification be made in the share register of the company. The application was allowed by a conditional order passed by a learned Judge of the Madras High Court. The decision was affirmed by the appellate Court which held that the notice of forfeiture was defective and invalid. The company came in appeal to the Supreme Court. The Supreme Court agreed with the finding of the High Court that the notice was defective, and, therefore, the forfeiture was not justified. It was urged before the Supreme Court that the relief under section 155 being discretionary, the Court should have refused relief in the exercise of its discretion. Repelling the contention, the Court observed-- "Now where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the Court may refuse relief under section 155 and relegate the parties to a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said assertion is being made only with a view to oust the jurisdiction of the Company Court or assertions are such which would require detailed examination of the evidence. In the former case the Company Court would proceed with the adjudication of a petition under section 155. In the later case the Company Court would be justified in exercise of its discretion to reject the petition and relegate the parties to a regular civil suit. It has to be borne in mind that the power to rectify the register of members is discretionary and so also the power to decide questions relating to title as is apparent from bare reading of sub-section (3) of section 155 of the Act. We do not agree with the contention that jurisdiction of wide amplitude would be rendered fruitless and nugatory and purpose behind introducing section 155 would be defeated if it is held that the Company Court exercises summary jurisdiction under section 155 of the Act." (p. 58) The Conclusions of the Full Bench were recorded thus:-- "(1) The jurisdiction exercised by the Company Court under section 155 of the Act is discretionary and summary in nature. (2) In exercise of discretionary and summary jurisdiction the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction should decide itself. Strong reliance was placed on the deletion of proviso to section 38 of the 1913 Act which provided that the Court may direct an issue to be tried in which any question of law may be raised. While considering this question, the court observed-- "....By this deletion, submission is that the Company Court now itself has to decide any question relating to the rectification of the register including the law and not to send one to the Civil Court. There could be no doubt any question raised within the peripheral field of rectification, it is the Court under section 155 alone which would have exclusive jurisdiction. However, the question raised does not rest here. In case any claim is based on some seriously dispute civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member and if the Court fees such claim does not constitute to be a rectification but instead seeking adjudication of basic pillar some such facts falling outside the rectification, its discretion to send a party to seek his relief before Civil court first for the adjudication of such facts, it cannot be said such right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'court' under section 155, to the extent it has exclusive, the jurisdiction of Civil Court is impliedly barred. For what is not covered as aforesaid the Civil Court would have jurisdiction...." (p. 3163) It was held that the principle of law as decided by the High Court that jurisdiction of the Court under section 155 is summary in nature cannot be faulted. However, Their Lordships were of the view that the Court should have examined itself to see whether even prima facie what is stated is complicated question or not. Even dispute or fraud, if by bare perusal of the document or what is apparent on the face of it on comparison of any disputed signature with that of the admitted signature, the Court is able to conclude no fraud, then it should proceed to decide the matter and not reject it only because fraud is stated. Since the High Court had not considered the matter from this angle, Their Lordships remanded the matter to the High Court to see for itself whether the dispute raised on the ground that the documents were forged was meant only to exclude the jurisdiction of the Court or it was genuinely so. 119. Mr. Nariman also submitted that the Court in Ammonia Supplies Corpn. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the parties to get such matters decided by a Court of competent civil jurisdiction. As we understand the judgment in Ammonia Supplies Corporation (P.) Ltd.'s case (supra), it only means this, that in an application for rectification under section 155, the Company Court would entertain and decide the application if the issues raised therein are such as can be decided by a court exercising summary jurisdiction. If, however, it is necessary before granting the application for rectification to decide other issues involving complicated questions of law and fact, and disputed questions of title, right, etc., then, the Company Court may direct the parties to get their disputes adjudicated by a Civil Court. The exclusive jurisdiction under section 155 is confined only to those cases where the Court can appropriately in a summary jurisdiction decide the questions raised therein. It, therefore, follows that if an application for rectification does not raise any complicated questions of law or disputed question of title or any other such complicated issue which require determination by a Court of law, the applicant cannot seek relief by filing a civil suit because the questions that aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised in the suit. We are of the view that these questions cannot be decided in exercise of summary jurisdiction. The rectification of the register could be ordered only after answering all these questions and, therefore, having regard to the ratio in Ammonia Supplies Corporation (P.) Ltd.'s case (supra) these are questions which did not fall within the 'peripheral field of rectification' but raised complicated questions of law and fact, and questions of title, which could appropriately be decided only by a court of competent jurisdiction. They cannot, therefore, be considered to be questions raised within the peripheral field of rectification contemplated by section 155. 123. Mr. Nariman, rightly relied upon the decision of the Supreme Court in State of Tamil Nadu v. State of Karnataka 1991 Supp. (1) SCC 240, and submitted that it is for the courts to decide the parameters, scope, authority and jurisdiction of the Tribunal constituted under the Act. The limited jurisdiction conferred upon the Court under section 155 as it stood earlier, did not confer jurisdiction on it to consider questions which did not squarely fall within the peripheral field of rectification. Those questions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statute and other permissible aids. Similarly, in Kehar Singh's case (supra), it was observed that the function of determining whether the act of a constitutional or statutory functionary falls within the constitutional or legislative conferment of power, or is vitiated by self-denial on an erroneous appreciation of the full amplitude of the power is a matter for the court. These decisions clearly lend support to the submission of Mr. Nariman that questions which do not fall within the peripheral field of rectification and raised larger questions of law as to the parameters of the statute, jurisdiction of the Tribunal and interpretation of law and statutory regulations fall within the domain of courts and it is only the courts which can pronounce their views on these matters. 124. We must, therefore, hold that the authorities on the subject do recognise the common law right of a shareholder to seek rectification of the register of members, and the jurisdiction of the Civil Court in appropriate cases is not barred where complicated questions of law and fact arise in an application for rectification under section 155, and it is not possible for the Court to grant relief without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) that the transfer of the security was likely to result in such change in the composition of the Board of Directors as would be prejudicial to the interest of the company or to the public interest, and (d) that the transfer of the security was prohibited by any order of the Court, Tribunal, etc. Under section 22A of the Securities Contract (Regulation) Act, 1956 these were the only four grounds on which a company could refuse to register a transfer of securities of a listed company. If the company was of the view that the registration ought to be refused on the ground mentioned in clause (a), it had to intimate the transferor and the transferee about the requirements under the law which had to be complied with. In other cases, it has to refer the matter to the Company Law Board and the Company Law Board was required to pass an appropriate order after giving reasonable notice to the company as well as to the transferor and the transferee. 127. With effect from 31-5-1991, the provisions of sections 111 and 155 were imported into section 111 and section 155 stood deleted. Sub-section (4) of section 111 substantially incorporates the provisions of erstwhile section 155 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground of the transfer being in violation of any other law in force. Apparently, therefore, even in the case of violation of the SEBI Regulations, a member of a Company could not ask for rectification of the register, though the company itself could apply for such rectification. The section also enabled the Company Law Board to suspend the voting rights before making or completing such enquiry. 129. So far as Private Companies are concerned, section 111 continues to govern matters relating to transfer and registration of shares and rectification of the register. Section 22A, which was inserted in the Securities Contract (Regulation) Act, 1956 was omitted by the Depositories Act, 1996. 130. Thereafter, with effect from 15-1-1997, section 111A was again amended and as it now stands, it reads as follows : "111A. Rectification of register on transfer.--(1) In this section, unless the context otherwise requires, 'company' means a company other than a company referred to in sub-section (14) of section 111 of this Act. (2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable : Provided that if a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Board is empowered to direct such a company to register the transfer of shares. In sub-section (3), apart from the SEBI Act, and Regulations framed thereunder, and Sick Industrial Companies (Special Provisions) Act, 1985, the words 'any other law for the time being in force' were added. 131. Mr. Chidambaram submitted that having regard to the provisions of section 111A, as it stands after 20-9-1995, and in particular after 15-1-1997, a public company cannot refuse to register a transfer of shares. According to him, even if the Company finds contravention of law, it shall first register the transfer and then apply to the Company Law Board for rectification of the register. The words 'without sufficient cause' in proviso to sub-section (2) must be confined to some defect like discrepancy in signature or date or stamp. Sub-sections (2) and (3) had to be read together harmoniously. If it gave a wider description to the Public Company, the language of the section would have been different, and instead of empowering the Company Law Board to direct such company to register such transfer of shares, the Legislature would have used a different language empowering the Company Law Board to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If it is not so, it will simply dismiss the appeal and no further direction is required to be made. It was submitted that the amended section 111A brought in the concept of free transferability of shares and, therefore, a company had no discretion not to register a transfer of share if an application for transfer was properly made. In the first instance, the concept of free transferability was not a new concept introduced for the first time by amendment of section 111A. In any event, the concept cannot be unduly exaggerated so as to render nugatory the relevant statutory regulations, as was held in LIC v. Escorts AIR 1986 SC 370, nor can it be invoked so as to justify cornering of shares surreptitiously, with a mala fide intention and in a clandestine manner contrary to public policy as was held in N. Parthasarathy v. Controller of Capital Issues AIR 1991 SC 1420. The words 'without sufficient cause' in the Proviso to sub-section (2) of section 111A are not without significance, and cannot be so read and understood as to render it otiose. 133. Mr. Chidambaram then emphasised the fact that significantly the right to apply for rectification under sub-section (3) of section 111A i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking away the common law right of a member of a company to seek rectification of register of members. At best, it can be said that after the insertion of section 111A with effect from 20-9-1995, a member of a Company has no statutory right under the Companies Act to seek rectification of register of members. His common law right, however, remains intact and he can assert that right by filing a suit before a court of competent jurisdiction. A learned Judge of this Court in Gopal Krishna Banga v. Poona Industrial Hotel Ltd. [1999] 34 CLA 177 (Bom.) has taken the same view. In this context, it is also worth noticing that till 15-1-1997, when section 111A was amended, no one could, in a proceeding under section 111A, challenge a transfer which was in violation of any law in force, other than SEBI Act and Regulations, and Sick Industrial Companies (Special Provisions) Act, 1985. It would, therefore, be difficult to contend that section 111A took away the common law right of a member to seek rectification on account of the transfer being in violation of a law in force. The jurisdiction of Courts was not expressly excluded, nor section 111A as originally enacted or even after its amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Procedure like section 9 of order VII rule 7. This principle was recognised in Supreme General Films Exchange Ltd. v. His Highness Maharaja Sir Brijnath Singhji Deo of Maihar AIR 1975 SC 1810, wherein it was held that section 42 merely gives statutory recognition to a well-recognised type of declaratory relief and subjects it to a limitation, but it cannot be deemed to exhaust every kind of declaratory relief or to circumscribe the jurisdiction of Courts to give declarations of right in appropriate cases falling outside section 42. The principle was further reiterated in Ashok Kumar Srivastav v. National Insurance Co. Ltd. AIR 1998 SC 2046. 137. Mr. Nariman also contended that the 'obligation' within the meaning of section 38 of the Specific Relief Act was not confined to contractual obligations but include every duty enforceable by law or individual or government. He placed reliance on Firm Kishore Chand Shiva Charan Lal v. Budaun Electric Supply Co. Ltd., AIR 1944 All. 66, wherein the submission that relief of specific performance could be granted only in relation to contracts under the Specific Relief Act and the Act did not provide the remedy for the breach of statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medy but there is no express or implied indication as to whether other remedies are also available, there is a prima facie presumption that it is intended to be the only one available. This presumption will not always exist and the question depends in each case on the construction of the enactment concerned, and the intention of the statute, as disclosed by its scope and by its wording, that other remedies should not be excluded. The general principle equally applies where, although the statute does provide a remedy, part of the liability in question remains to be discharged after the statutory remedy has been exhausted. In paragraph 398 of Halsbury's Laws of England, Fourth Edition, Vol. 45(2), the principle enunciated is whether, or not an individual can bring a common law claim in respect of a breach of a duty imposed by a statute depends upon whether, the intention of the statute, considered as a whole and in the circumstances in which it was made and to which it relates, was to impose a duty enforceable by an aggrieved individual. No universal rule can be formulated which will answer the question whether in any given case, an individual can sue. In answering the question it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well agitate their cause before a Civil Court since there is no express bar to seeking recourse to a competent court of civil jurisdiction. 142. It was then submitted by Mr. Chidambaram that the trial Court was in error in holding that the purchase of shares by the appellants and the resultant take over arising out of the voting in a particular manner were two parts, and that it is the latter part which remained to be completed and that, section 23 of the Contract Act applied. He submitted that the shares being movable property and transferable as such like any other movable property, a transfer of title between the transferor and transferee is effective from the date of the transfer. As against the company, it is effective from the date of registration. Insofar as the transferor and the transferee are concerned, the transaction is complete at the time of transfer. The contract is between the seller and the purchaser and has nothing to do with voting in any particular manner. What is purchased is a share, and this cannot be split into property rights in the share and right to vote on the strength of the share. The contract is performed or executed and no part of the contract re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a three Judge Bench. 143. Mr. Ashok Desai, appearing on behalf of defendant No. 1, referred to the provisions of the SEBI Regulations and of the Companies Act, and submitted that on a proper interpretation of the provisions, the transactions made can never be regarded as a nullity or void or require any interference of the Court. Under regulation 39 of the SEBI Regulations 1994, the Board can give a range of directions, including retaining the securities as a direction. It may also direct the person concerned to sell the shares, thus recognising the status of the acquirer as a shareholder. The scheme of section 111A of the Companies Act also supported this view inasmuch as under sub-section (5), the holder of a share can transfer the share and the transferee can fully exercise his voting rights. No doubt, the right of a shareholder to vote could be suspended by the Company Law Board, but in the absence of any such specific order of the Company Law Board, the Companies Act recognises the right of the shareholder not only to vote on the strength of his shares but also to transfer. This, clearly, was indicative of the fact that the transactions have not been regarded as void nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read in addition to and not in derogation of the provisions of any other law for the time being in force such as the Transfer of Property Act and the Contract Act. Regulation 39 was in the nature of a civil sanction for what is otherwise criminal. The directions that may be issued under Regulation 39 are without prejudice to the right of the Board to initiate criminal prosecution under section 24 of the Act. This is clearly indicative of the fact that transactions in breach of the Regulations are void. He further submitted that the regulator SEBI is empowered to sell the shares or dispose them of as a protem measure. It may thereafter pass any other direction under Regulation 39 which deal with de facto acquisition. Factually, the shares are in the possession of the acquirer though acquired in violation of the Regulations. Section 111A of the Companies Act itself recognises the transfer in violation of the Regulations and other laws as void, and, therefore, the register of members has to be rectified accordingly. In fact, SEBI can also apply for rectification. Under that provision, it is open to the Company Law Board to put a restraint on the voting right of the shareholders or ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd argued that in the case of completed transactions, a Plaintiff could not file suit impeaching such a concluded transaction, and at his instance, concluded transactions cannot be declared void. The principle is well accepted that negative words are clearly prohibitory and are ordinarily used as a Legislative device to make a statute imperative. Where the language is clothed in the negative form, the Legislative intent that the provision indicated is mandatory must be inferred. But the principle is not without exception. The authorities lay down that negative words are usually mandatory but rule is like any other rule subject to the context and the object intended to be achieved by the particular requirement. 147. We may notice the authorities cited at the Bar. In Banarsi Das v. Cane Commissioner AIR 1963 SC 1417, Their Lordships referred to a passage in Maxwell on the Interpretation of Statutes at page 364 which reads thus-- "It has been said that no rule can be laid down for determining whether the command (of the statute) is to be considered as a mere direction or instruction involving no invalidating consequence in its disregard, or as imperative with an implied nullificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iage, and the parties are subject to a binding tie of wedlock flowing from the marriage. After a comprehensive review of the relevant provisions of the Act, the Court posed the question as to whether the framers of law intended that the marriage contracted in violation of the provision contained in proviso to section 5 to be void. Their Lordships, after examining the matter from all possible angles and keeping in view the fact that the scheme of the Act provides for treating certain marriages void, and simultaneously some marriages which are made punishable yet not void, and no consequences having been provided for in respect of the marriage in contravention of the proviso to section 15, held that it cannot be said that such marriage would be void. Mr. Chidambaram also placed reliance on Deivanayaga Padayachi v. Muthu Reddi AIR 1921, Mad. 326. In that case, a settlement was made with the object and in consideration of the donee cohabiting with the settlor. In a suit filed by the Plaintiffs who were the mortgagees of the property, having obtained the mortgagee from the donee, the settlement was challenge by the settlor-defendant contending that the same having been made for immoral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer is void and need not be set aside. It was held that refusal by Courts to grant relief on the basis of such maxims as ex turpi causa non oritur actio or pari delicto or particeps criminis is based on grounds of public policy and therefore if the same or higher public policy demands in a particular context that relief should be give, then such maxims should not be used any more as a bar, and the courts should not deny relief. The rule in Ayerst's case (supra) should never be used to (a) defeat statutes like section 6(h)(2 ) of the Transfer of Property Act, (b) make the plaintiff liable to prosecution, conviction and punishment under such statute as the Bengal found that so far as the sale deed was concerned, though it was executed for an ostensible consideration of Rs. 800, no such consideration had passed and that the real consideration for the sale deed was past and future cohabitation. It was observed that under section 23 of the Contract Act, the consideration or the object of an agreement is lawful unless the Court regards it as immoral or opposed to public policy. The consideration or object of an agreement in such a case is said to be unlawful, and every agreement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kocheri v. Neminath Appayya Hanamannayar AIR 1968 SC 1358, a contract for purchase of land with the knowledge of the parties that the purchaser will be in possession of lands in excess of ceiling under section 5 of the Bombay Tenancy and Agricultural Lands Act was entered into. It was held that the contract was not void, and there was nothing in the Act to indicate that the Legislature had prohibited a contract to transfer land between one agriculturist and another. The inability of the transferee to hold land in excess of the ceiling prescribed by the statute had no effect upon the contract or the operation of the transfer. 149. Mr. Nariman, on the other hand, relied upon the judgment in Mannalal Khetan's case (supra). The questions which arose before the Apex Court was (i) whether the provisions of section 108 of the Companies Act are mandatory in regard to transfer of shares, and (ii) can a company having been served with notice of attachment of shares, register transfer of shares in contravention of the order of attachment. The Court noticed the provisions contained in section 108 of the Companies Act that 'a company shall no register a transfer of shares' unless a proper inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case (supra), and in fact, submitted that the law laid down in this judgment which, to a great extent, modified the principles laid down in Mannalal Khetan's case (supra) should be preferred. In Bank of India, by a notification issued under section 16 of the Securities Control Regulation Act, entering into a forward contract was prohibited, but it expressly permitted sale of securities by spot delivery. The Bank had entered into contracts with the notified persons which were challenged by the Custodian as being void, as they were in breach of the relevant statutes including the Securities Contract Regulation Act and the notification issued under section 16 thereof. The contention of the Custodian was upheld by the Special Court, against which the Bank went in the appeal to the Supreme Court. 151. It was contended by the Custodian that the ready-forward transactions were composite and unseverable, the illegality attached to the forward element of the contract rendering the contract wholly void. On the other hand, the Bank contended that even if it was assumed that such a contract evidenced one composite transaction, the same was severable into two parts, each of which had a separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he re-sale of the securities at a later date which the notification did not permit. This latter part of the agreement could not have been entered into and is clearly severable and cannot affect the transfer of the title which had already taken place at the time of the execution of the ready leg. This being so, the securities which had been purchased by the appellants from the notified persons could not be attached." (p. 1965) Mr. Chidambaram, submitted that the principle of equity enunciated in Ayerst's case ( supra) was followed and applied by the Madras High Court as well as this Court in Deivanayaga Padayachi and Sambava respectively. The Calcutta High Court carved out an exception to the rule in Pranballav. He, therefore, submitted that apply the Ayerst's case (supra) rule, it must be held that the transactions relating to purchase of shares being completed transactions, no relief can possibly be granted to the plaintiffs on a finding that the transactions are void. The submission overlooks a significant fact. The equitable rule proceeded on the basis that in equity, a person who had entered into an agreement or transaction, the considera-tion or object of which was immoral or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ayerst's case (supra) cannot be extended to persons who are not particeps criminis, and in any case, the equitable rule does not even remotely touch on the question of voidness of such transactions. These decisions, therefore, do not assist the defendants. 153. Mannalal Khetan's case (supra) is more apposite. Mr. Nariman drew our attention to the similarity of the negative prohibitory words in section 108 of the Companies Act and the Regulations of 1994. The words used in section 108 are 'shall not register', and in the regulations, the words are 'shall not acquire'. Moreover, Mannalal Khetan's case (supra) also dealt with the question in relation to transfer of shares, as in the instant case. Various tests have been laid down in Raza Buland Sugar Co. Ltd. v. Municipal Board AIR 1965 SC 895 which have been referred to in Mannalal. Applying these tests, it will be found that the legislative intent was to prohibit acquisition of shares in breach of the Regulations. For the violation of the relevant Regulations, an acquirer could be prosecuted and sentenced to a term of imprisonment. He was also liable to pay a penalty, apart from prosecution. The whole purpose of the Act is to prote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a has brought about any change in the law as enunciated in Mannalal Khetan's case (supra). In our view, no such change has been brought about. In Bank of India Finance Ltd.'s case (supra), the Court was required to consider the validity of the ready-forward transaction which consisted of two parts which were severable, each of which had a separate consideration and a separate object. The notification issued under section 16 of the Securities Control Regulation Act prohibited the entering into of a forward contract but permitted sale of securities by spot delivery. Thus, the ready leg was perfectly legal as neither its object nor the consideration was illegal, unlawful or prohibited under section 23 of the Contract Act. Only the forward leg was prohibited under the section 16 notification. Applying section 57 of the Contract Act, the ready leg was held to be valid and the forward leg was declared void. 155. Mr. Nariman submitted that apart from the fact that the Court had not to considered a provision like section 32 of the SEBI Act, the facts of the case are quite distinguishable. In the instant case, there is only one transaction of transfer, and not two as in Bank of India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may not be possible to put him in the same position as he was when the proceeding was initiated. We are inclined to take the view that an order of this kind may be passed by the SEBI only under regulation 39. An order under regulation 37(2) may be passed by the SEBI after considering the investigation report and the explanation furnished by the acquirer. SEBI may call upon the person concerned to take such measures as the Board may deem fit in the interest of securities market and in due compliance of the provisions of the Act, Rules and Regulations. In our view, the orders that may be passed under regulation 37(2) are of an interim nature. The final order that may be passed by SEBI in the nature of directions has to be passed under Regulation 39 after hearing the concerned parties. One of the directions that may be issued under Regulation 39 may be a direction to the person concerned to sell the shares acquired in violation of the provisions of the Regulations. This is the final direction that may be given at the conclusion of the proceeding and such a direction cannot be given as a protem measure because, in that event, the position is irretrievably changed and if finally, SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he saving clause did not apply in the present case. 159. On the other hand, Mr. Nariman contended that the repeal of the 1994 Regulations did not have the effect of making legal what was illegal under the 1994 Regulations. In any event, the facts of the case show that the proceeding had been initiated under the 1994 Regulations, and an enquiry followed by a show-cause notice had commenced. The proceeding was saved by the repeal and saving provision, viz., Regulation 47 of the 1997 Regulations. Regulation 47 of the 1997 Regulations is as follows:-- "2. Notwithstanding such repeal:-- (a)Anything done or any action taken or purported to have been done or taken including approval of letter of offer, exemption granted, fees collected, any adjudication, enquiry or investigation commenced or show-cause notice issued under the said Regulations shall be deemed to have been done or taken under the corresponding provisions of these regulations; (b)An application made to the Board under the said regulations and pending before it shall be deemed to have been made under the corresponding provisions of these regulations; (c)Any appeals preferred to the Central Government under the said Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken under the Regulations of 1994 shall be deemed to have been done or taken under the corresponding provision of the Regulations of 1997. The effect of the fiction is that the Regulation of 1997 had come into force when such thing was done or action taken. Several decisions have been cited at the Bar on this question, and we shall now proceed to consider the same. 161. In State of Punjab v. Mohar Singh Pratap Singh AIR 1955 SC 84, the respondent had filed a claim in accordance with Ordinance No. 7 which was promulgated on 3-3-1948, claiming to be a displaced person, who had lands situate in West Punjab. On the 1-4-1948, the Ordinance was repealed and Act No. 12 of 1948 was enacted. It was later found that the claim made by him was absolutely false and thereupon a prosecution was started against him on 13-5-1950. In that case, it was held that the provisions of section 6 of the General Clauses Act applied, because the Ordinance was repealed before its expiry. It was also noticed that the provisions of the Act contained identical provisions as contained in the Ordinance. Section 11 which repealed the earlier Ordinance provided that any rules made, notifications issued, anything d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saving clause for preservation of anything done or action taken. The Act was substantially in similar terms except for some minor differences. The contention of the appellants in that case was that there was by operation of law, automatic absorption of the employees of the erstwhile contract carriage operators to the extent provided therein. The Court found that various steps had to be taken before an employee could be absorbed, and automatic absorption of the employees of the erstwhile contract carriage operators was not legally permissible. The question then arose as to whether, anything had been done or any action taken under the repealed Ordinance. It was found that there was neither anything done nor action taken, and, therefore, the appellant did not acquire any right to absorption. The saving clauses saved things done by the Ordinance while in force, and did not purport to reserve the right acquired under the repealed Ordinance. On these findings, the appeal was dismissed. This decision also does not help the defendants because, as a fact, it was found that nothing had been done and no action taken under the repealed Ordinance which were saved by the saving clauses. Mr. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhagalpur [1997] 10 SCC 51, the question which arose for the court's consideration was the effect of the repeal of the Regulations, particularly sections 27 and 28 thereof. In that case, provisions of section 8 of the Bihar General Clauses Act were applicable. The transfer of tenancy right was challenged as being violative of section 27 of the Regulations which was subsequently repealed. But the facts of the case disclosed that the transfer was challenged, and the matter came up for consideration before the higher authorities, and ultimately, an order was passed under section 27(3) of the Regulations whereunder the transfer in favour of the transferee was regularised. In these circumstances, the Court held that after the repeal of section 27 of the Regulations, the right of the vendee could not be challenged by reason of the repeal. There was no express provision in the Act which laid down that the order passed or actions taken in connection with the transactions under the Regulations, and notwithstanding any rights which might have accrued thereunder, fresh scrutiny of the said transaction could be made under the relevant provisions of the Act which correspond to the earlier repea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n whereby rule 10 was deleted did not contain any saving clause for continuance of the proceeding initiated under the rule which was deleted/omitted. The principle laid down in the aforesaid judgment does not help the defendants because that was a case in which there was no saving clause for continuance of the proceedings. 165. Mr. Nariman, on the other hand, relied upon the decision of the Supreme Court in Ram Kristo Mandal v. Dhankisto Mandal AIR 1969 SC 204. In that case, the challenge was to a transaction of exchange said to have been entered into in violation of section 27 of the Regulations. The submission urged on behalf of the Respondents was that section 27 did not mention in express term an exchange, and therefore, the transaction of exchange was beyond the scope of that section. The Court found that the objection had no merit since the language of section 27 of the Regulations was comprehensive enough to include any agreement or contract of exchange. The Court then considered as to what was the effect of the repeal of sections 27 and 28 of the Regulations. It was held that the transaction of exchange was made when section 27 was in force and governed the transaction. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of 1947, unless the proceedings in relation to such offences had commenced before a Special Judge appointed under the Act of 1952. In the absence of such Special Judge under the Act of 1952 in the State of Sikkim, section 26 of the Act of 1988 was not applicable and the proceeding was not governed thereby. Section 30 of the Act of 1988 was not applicable to the facts of the case inasmuch as the repeal under sub-section (1) of section 30 is a joint repeal of both the Acts, namely, the Act of 1947 and the Act of 1952. Sub-section (2) of section 30 will come into play only if sub-section (1) is applicable. In the State of Sikkim, the Act of 1952 was not in force so as to be repealed by sub-section (1) of section 30 and consequently, sub-section (2) will not apply. It may be noticed that section 30(2) of the Act of 1988 provided that anything done or any action taken or purported to have been done or taken under or in pursuance of the Acts so repealed shall, insofar as it is not inconsistent with the provisions of the Act, be deemed to have been done or taken under or in pursuance of the corresponding provision of the Act, without prejudice to the application of section 6 of the Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing was done or action was taken." It may be noticed that the saving clauses in the above case and Regulation 47 in the instant case, are similar and the relevant words in the saving clauses are identical. The principle laid down, therefore, applies with full force and, therefore, it must be held that if any enquiry or investigation had been commenced or any show-cause notice issued under the repealed regulations, it must be deemed that the repealing regulations had come into force when such enquiry or investigation was commenced or show-cause notice issued. Obviously, therefore, the proceeding would be continued under the corresponding provision of the Regulations of 1997. In this view of the matter, the submission of Mr. Chidambaram that in view of the repeal, the obligation to make a public offer did not survive must be rejected. The Regulation of 1994 cast an obligation on the person concerned to make a public offer. He having failed to do so, proceeding could be initiated under the relevant provisions of the Regulations of 1994. Since proceeding is saved by Regulation 47, it must logically follow that the obligation incurred by the person concerned may be enforced in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la & Craigie Blunt & Caroe on behalf of Kishore Chhabria (defendant No. 1) in which it was stated that their client had come to know of an enquiry being made by SEBI to Herbertsons Ltd., relating to the shareholding of their client in Herbertsons Ltd., by certain of his Companies as set out in Annexure 'A'. With a view to facilitate the said enquiry and complete the same, facts and background related to and relevant for such enquiry were set out in the said letter. The letter contains details about the manner in which shares of Herbertsons Ltd., were acquired, and the manner in which funds were arranged by the ultimate holding company viz., Galan Finvest (P.) Ltd., which received the fund from Oswal Electronics (P.) Ltd., which, in turn, received the fund from Chhabria Marketing Ltd. It was submitted that in the facts and circumstances, it was not necessary for the purchasers to file a declaration under Regulation 5. The third document on which reliance was placed is a letter dated 20-1-1998, addressed by M.D. Chhabria (defendant No. 11) to the Chairman of SEBI, seeking clarification regarding the applicability of the Take Over Code of 1994 in relation to the purchase of 10.91 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant sources the enquiry must be deemed to have commenced. After such an enquiry is commenced, and facts come to light, notices may be issued to the persons concerned whose involvement may be suspected. The date of commencement of the enquiry is, therefore, not the date on which notices are issued, but the date on which the enquiring authority takes cognizance of the violations and proceeds in the matter together further information and evidence. In the instant case, on the basis of material on record, we find that the earliest communication was addressed to Herbertson Ltd., by SEBI on 9-6-1995. Mr. Nariman submitted that it may be that even before the issuance of the said letter, some enquiry may have been made. In the absence of SEBI, it is not possible to speculate as to what other steps were taken by SEBI. He submits that the material on record at least establishes this fact that by 9-6-1995, SEBI had before it material justifying an enquiry by it for breach of SEBI Regulations of 1994, and such an enquiry was initiated while the Regulations of 1994 were in force and continued notwithstanding the repeal of the Regulations of 1994. We find that there is material to support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in the show-cause notices cannot be deemed to be final. The issuance of a show-cause notice is justified on the basis of some material available to the enquiring authority which raises a suspicion about the breach of the Regulations. Such notices are a step in the process of enquiry. After the notices submit their reply, the enquiring authority may either proceed further in accordance with the Rules or withdraw the notices. Certainly, a show-cause notice cannot be equated with an order passed by a statutory authority recording a finding therein. However, in the absence of SEBI, it will not be permissible for the defendants of contend that SEBI acted mala fide. If they believed that to be true, they could have taken appropriate proceedings for getting the notices quashed, which they have not done. We, therefore, do not propose to go into the correctness of the facts alleged in the show-cause notices issued to defendant Nos. 1 and 11, nor do we propose to go into the question as to whether SEBI acted mala fide. We have taken notice of the show-cause notices brought on record only for the consideration of the question as to whether, an enquiry had been commenced by SEBI in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply to personal action. In Halsubury's Laws of England, 4th edition, vol. 16, paragraph 1305, it is stated that a Court of equity refuses relief to plaintiff whose conduct in regard to the subject-matter of the litigation has been improper. This was formerly expressed by the maxim 'he who has committed inequity shall not have equity', and relief was refused where a transaction was based on the plaintiff's fraud or misrepresentation, or where the plaintiff sought to enforce a security improperly obtained, or where he claimed a remedy for a breach of trust which he had himself procured and whereby he had obtained money. The maxim does not, however, mean that equity strikes at depravity in a general way; the cleanliness required is to be judged in relation to the relief sought, and the conduct complained of must have an immediate and necessary relation to the equity sued for; it must be depravity in a legal as well as in a moral sense. To the same effect is the observation in Hanbury and Maudsley Modern Equity, 13th edition, 1989 at page 28 that equitable relief will only be debarred on the ground of clean hands if the plaintiff's blameworthy conduct has some connection with the reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a in minority. The suit is clearly an abuse of process of the Court. The documents brought on record prove that the Plaintiffs have unrestricted access to confidential files and materials. That is how they could produce the declarations filed by the Company. It is also alleged that even though Vijay Mallya had similarly acquired 5.51 per cent shares of the Company in the name of various companies under his control, the same has never been challenged by the Plaintiffs nor any suit had been filed to assail those acquisitions. It is further alleged that though the Plaintiffs claimed a personal right or cause of action to file the suit being an alleged right to a competitive bid, they thwarted the offer made by defendant No. 11 to make a public offer without prejudice to his stand that there was no violation, by deflecting the same. The defendants have also alleged that the Plaintiffs along with Vijay Mallya are guilty of diversion of funds of Herbertsons Ltd., and that there are observations to this effect in the assessment order dated 31-3-1997 passed by the Income-tax authorities. It is not disputed that the assessment order was set aside in appeal though on a technical point, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on without any basis in facts. The stand of SEBI had throughout been consistent, viz., that the acquisitions were made in breach of SEBI Regulations. There is nothing on record to show that SEBI had ever called upon the defendants to make a public offer. The mere fact that on his own, M.D. Chhabria, defendant No. 11, volunteered to make a public offer is of no consequence because he was planning to do so without dislodging the shares illegally acquired by him. With regard to registered users agreement, he submitted that such agreements had been executed in favour of others as well but nothing is said in regard to those agreements. Mr. Nariman, also submitted that the facts alleged by the defendants about the improper conduct of the Plaintiffs, in any case, is not related to the reliefs sought for in the suit and, therefore, are not relevant. 178. Though serious allegations have been made against the Plaintiffs and Vijay Mallya, and the various agreements have been referred to as collusive and fraudulent, it does not appear that those agreements were ever challenged before any authority. In the annual general meetings of the Board of Herbertsons Ltd. also, these issues were not rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as the Plaintiffs were never in a position to make a competitive bid though they have so asserted in the plaint. This question also is not relevant at this stage. The question of making a competitive bid would arise after the defendants make a public offer. The submission has, therefore, no force. The claim of the defendants that they were willing to make a public offer but the Plaintiffs managed to divert the issue, is again, not based on material on record. In fact, there is nothing on record to show that the SEBI ever called upon the defendants to make a public offer. 179. Much has been said by the Plaintiffs about the conduct of the defendants, both before and after the filing of the suit. The learned trial Judge has carefully considered the submissions advanced before him. We do not consider it necessary to go into that question because grant of relief to the Plaintiffs would depend upon the case established by them and their conduct. The conduct of the defendants would not be very material so far as the question of grant of relief to the Plaintiffs is concerned. No doubt, we have considered the conduct of the defendants for the purpose of finding out whether they were acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced before this Court because of their binding nature or persuasive value, but for the very limited purpose of establishing that such orders are not unprecedented, and even in other countries, such orders are passed by the Courts. 182. It is not necessary for us to look into the American Courts' decisions because the validity of such an order must be tested by reference to law as it exists in India. The submission of the defendants proceeds on the assumption that it is only the Company Law Board which has the power to suspend voting rights under section 111A of the Companies Act. Since the Civil Court has no power to rectify the register, it does not have the power to suspend voting rights in respect of the registered or unregistered shares. We have already held that a member of a company has the common law right to move the civil court for rectification of the register of members. Section 111A is only a statutory remedy, and that too is not available to a member of a company. We cannot, therefore, subscribe to the view that section 111A of the Companies Act is a self-contained Code, and power to suspend voting rights inheres only in the Company Law Board. Since we have held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed an order, the trial Court should not have made the direction it has made in its impugned judgment. Particular reference was made to the observations in the order of the trial Court that, if in future, a public offer is made by the defendants, that must include the impugned shares. It is submitted that this should have been left to the discretion of the SEBI. The trial Judge, after declaring the law, has given this direction. Under the Regulations of 1994, a public offer should have been made before the acquisition of the shares. Thus, the direction only seeks to relegate the defendants to the same position as they would have occupied had they acted in conformity with law. The defendants further contended that in the past, SEBI had, in many cases, directed the acquirer to make a post-facto public offer. This was challenged by Mr. Nariman who sought to distinguish those instances on which reliance was placed by Mr. Chidambaram and Mr. Desai. It is not necessary for us to go into this question because, we do not wish to express any opinion on this matter. Since SEBI has issued notices for breach of SEBI Regulations of 1994, it may not be proper for us to suggest what orders it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was passed later. A photocopy of the cheque produced by the plaintiffs for the said amount was shown to us by Mr. Desai. It appears from the judgment of the trial Court that the defendants were not interested in any monetary protection. In fact, the cheque which was offered and seen by the learned Judge was returned to the Counsel for the Plaintiffs not on the ground of delay but because the defendants themselves were not interested in such deposit being made. In fact, a written undertaking was also handed over to the Court, but the same was also returned. The learned Judge has observed in his order that the defendants were not interested in any such monetary protection inasmuch as their principal submission is that on the basis of free transferability, their voting rights should not be injuncted, and at the highest, a protective mechanism be provided in the management of defendant No. 12-Company. 185. In the end, it was submitted on behalf of the defendants that they must be given adequate representation on the Board of Directors of Herbertsons Ltd. This submission was advanced before the trial Court as well. Having regard to the facts and circumstances of the case, we are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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