9911796707
TMI Blog2004 (10) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... d to bring that liability in the accounts of the company to the detriment of the company and its shareholders. During the pendency of the section 397 proceeding the respondents made an application under section 111A(3) of the Companies Act, 1956 for rectification of its Shareholder Register by deleting the names of the appellants as according to them such transfer was in violation of the Take Over Code. In section 397 proceeding the management contended that since the very acquisition of shares was unlawful the proceeding under sections 397 and 398 was not maintainable. Company Law Board heard both the proceedings and by a common order allowed rectification and dismissed section 397 proceeding. Hence this appeal. 3. The Company Law Board while allowing rectification relied on their own judgment in the case of Mega Resources v. Bombay Dyeing Mfg. Co. Ltd. [2002] 1 CLJ 347 1 . According to the Board under regulation 7 shares acquired beyond 5 per cent would be invalid without compliance of the provisions of the said regulation and Shareholder Register required rectification under section 111A(3). 4. The Company Law Board also considered two Single Bench decisions, one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss did not seriously support forfeiture of shares by the Company Law Board. 8. The Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act") was enunciated to control inter alia stock markets to protect the interest of the investors in securities and to promote the development of and to regulate the securities market. Under the said Act section 15A provides for penalty for failure to furnish information in terms of the said Act and/or regulations made thereunder. In terms of section 15A the penalty has been provided for disclosure of acquisition of shares by making public announcement whereas section 15J provides for adjudication of the penalty. A comprehensive procedure has been laid down in the said Act with regard to the trial of the said offences as well as appeal to be made thereunder. 9. In terms of the said SEBI Act, Take Over Code called as SEBI Regulation, 1997 came into operation in 1997. Regulations 2( i )( b ) and ( e ), 7 and 10 being relevant herein are quoted below: "2( i )( b ) acquirer means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company; or acquire o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ** ** ** 7. Acquisition of 5 per cent and more shares or voting rights of a company. (1) Any acquirer who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent shares or voting rights in a company, in any manner whatsoever shall disclose the aggregate of his shareholding or voting rights in that company, to the company. (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; or ( b )the acquisition of shares or voting rights as the case may be ** ** ** (3) Every company, whose shares are acquired in a manner referred to in sub-regulation (1), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulation (1). ** ** ** 10. Acquisition of 15 per cent or more of the shares or voting rights of any company. No acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht down below 5 per cent no order was passed to the said effect. (2) Mega Resources case ( supra ) - Here also the Company Law Board took a similar view. (3) Mega Resources Ltd. s case ( supra ) - Here also Security Appellate Tribunal held that the shares acquired in violation of regulation 7 mandated the acquirer to make the disclosure and as such the penalty was liable to be imposed as provided in law. (4) Nile Limited s case ( supra ) - The Single Bench of the Andhra Pradesh High Court held that there is clear distinction between regulation 7 and regulation 10, regulation 7 obligates the acquirer to intimate the same to the company whereas regulation 10 restrain acquisition beyond 15 per cent. By this well versed judgment Chelameswar, J. speaking for the Andhra Pradesh High Court made a clear distinction between Chapter II and Chapter III in the said case. The Company Law Board in the said case took a consistent view which was set aside by His Lordship and the matter was remanded back to the Company Law Board to dispose of the same on the basis of the observation made by His Lordship. His Lordship clearly held, "Even then the legality of the acquisition is not affected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emplated. His Lordship s view is absolutely correct in my view and I respectfully beg to differ with the other decisions referred to above. With due respect to His Lordship in the Single Bench decision of this Court I am in total disagreement with the view where His Lordship held that the regulation 7 would include "persons acting in concert". However, the same may not be relevant herein and I do not feel it necessary to refer the said issue to a Larger Bench or a decision as I feel that the present issue can be resolved without going into detail as to what has been held by His Lordship on the meaning of regulation 7. 20. On a plain reading of regulation 7 it would appear that the regulation clearly stipulates "acquirer" whereas regulation 10 under Chapter III includes specifically "persons acting in concert". In my view, two chapters are having totally independent approach. Chapter II obligates the persons to inform and suffer penalty because of non-compliance. Chapter III puts a complete restriction on acquisition. In my view, in the later situation the acquisition itself is wrongful and is ipso facto invalid and null and void whereas Chapter II provides for penalty onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents contended that because of the death of the promoter of the company the present management decided to divest of the said assets by observing regular formalities required in law. 25. I am also told that as on the date of presentation of section 397 proceeding the value of the share was Rs. 73.40. However, presently the value of the shares have gone down subsequently. The respondent contended that although actual value of the share as on the date of presentation of section 397 proceeding was much less the value of the shares was artificially hiked up at the instance of the appellants. Directions: 26. In this backdrop, I feel interest of justice would be subserved if I direct the company to buy-back the shares of the appellants @ Rs. 73.40 per share being the value as on the date of presentation of section 397 proceeding. The appellants are also directed to sell their shares at the said value. 27. In the case the appellants do not want to sell their shares in the company, the company would be free to delete their names from the Shareholder Register after depositing the value of those shares at the aforesaid rate in any nationalized bank earmarked for payment t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
