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TMI Blog2017 (5) TMI 1729X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue the same number of shares already cancelled on premium to the money brought in by 1st Respondent/Petitioner or NRG. An independent authority was also ordered to monitor the affairs of the company for a period of one year. 3. Subsequently, the 1st Respondent/Petitioner filed the Interlocutory Application in question for clarification of order dated 24th August 2016, inter alia, to the following effect: - "a. Pass ad-interim ex-parte orders restraining Respondent No. 8 from seeking compliance with the provisions of Sections 100 to 104 of the Companies Act, 1956 or other provisions thereto for the cancellation and re-issuance of 1,09,59,792 shares held by NRP Group Limited in R1. (emphasis supplied)." 4. The Tribunal by impugned order dated 30th September, 2016 clarified the order with following observation: - "2. To which, the petitioner has sought clarification that the company need not follow the procedure laid under Section 100 to 104 of 1956 Act, when this Bench passed an order u/s 242(2) (c) of the Companies Act 2013/402 (c) of the Companies Act, 1956 for cancellation of the shares of the company which ultimately led to reduction of share capital in the company. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with specific subject, which has to be read in harmony with the provisions of the Companies Act 1956. In fact, 2002 Amendment of the SEBI Act further re-emphasize the fact that some of the provisions of the Act will continue to operate without prejudice to the provisions of the Companies Act, qua few provisions say that notwithstanding the regulation and order made by SEBI, the provisions of the Companies Act dealing with the same issues will remain unaffected. I only want to highlight the fact that both the Acts will have to work in tandem, in the interest of investors, especially when public money is raised by the issue of securities from the people at large. 6. It was also submitted that the petition filed by the 1st Respondent/Petitioner before the Tribunal, a promoter (shareholder) of 2nd Respondent company amounts to seeking immunity from action by statutory authorities, including SEBI, which is not permissible. 7. According to Ld. Counsel for the Appellant the SEBI Act, 1992 and the Rules framed thereunder are binding. Therefore, originally when the Respondents preferred the Company Petition did not implead the Securities & Exchange Board of India (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India [1979] 2 SCC 529" was relied on wherein the Hon'ble Supreme Court held:- "8.. Legislation by incorporation is a common legislative device employed by the legislature, where the legislature for convenience of drafting incorporates provisions from an existing statute by reference to that statute instead of setting out for itself at length the provisions which it desires to adopt. Once the incorporation is made, the provision incorporated becomes an integral part of the statute in which it is transposed and thereafter there is no need to refer to the statute from which the incorporation is made and any subsequent amendment made in it has no effect on the incorporating statute. Lord Esher, M.R., while dealing with legislation in incorporation in In re. Wood's Estate (1886) 31 Ch.D. 607pointed out at page 615: "If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act. just as if they had been actually written in it with the pen, or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of investors. The Companies Act, 1956 or Companies Act, 2013 is not in conflict with the SEBI Act. Therefore, the SEBI Act is required to be followed by all parties, including 1st and 2nd Respondents. Regulation 37 of LODR merely reiterates and adopts Section 101 of the Companies Act, 1956 and Section 66 of Companies Act, 2013 apart from other provisions such as Section 391 to 394 of the Companies Act, 1956 and Section 230 to 234 of the Companies Act, 2013. 15. However, it is to be seen up to what extent Regulation 37 or circular dated 30.11.2015 issued by SEBI can be followed in view of recent development which we will discuss in subsequent paragraphs. 16. It was contended that the Tribunal is required to decide the case and the Appellate Tribunal is to decide the appeal on the basis of law as it stood on the date of the cause of action. In support of said contention, Ld. Counsel relied on Hon'ble Supreme Court decision in "State of Kerala v. B.Six Holiday Resorts [2010] 5 SCC 186 at para 28". Ld. Counsel for the Appellant also argued on the effect of repeal of Act 1956 by Act 2013. Referring to judgement of Hon'ble Supreme Court in "Gammon India Limited v. Special Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal require to be dealt with such from the stage before their transfer and not in accordance with the provisions of Companies Act, 2013, as stipulated under clause (a.) of sub-section (1) of Section 434. 20. Therefore, it cannot be pleaded that the Tribunal is required to decide the petition or the Appellate Tribunal is required to decide the appeal on the basis of law as it stood on the date of cause of action insofar it relates to cases transferred from Company Law Board to the Tribunal. However, the aforesaid proposition will be applicable to transfer cases under clause (c) of sub-section (1) of Section 434 of Companies Act, 2013. 21. Ld. Counsel for the 1st Respondent while referring to the earlier order passed by Tribunal on 12th August 2016 and 24th August 2016 submitted that the order has been passed under Section 242 of the Companies Act, 2013. It was further contended that reduction of share capital for recapitalisation of company can be carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an interim order for regulating the conduct of the affairs of the company. The said order has nothing to do with the affairs of the company. 25. However, as the order dated 24th August 2016 is not under challenge, expressing some doubt about the order, we do not intend to interfere with the said order as the order dated 24th August 2016 has reached finality. 26. The Tribunal in the impugned order dated 30th September 2016 referred to the decision of HonTDle Supreme Court in "Cosmo Steels Private Limited and Others v. Jairam Das Gupta and Others [1978] 1 SCC 215" and Section 242(2) (c) of the Companies Act 2013. 27. In this connection we may refer to clause (c) of sub-Section (2) of Section 242 of the Companies Act, 2013 whereunder the Tribunal is empowered to pass order in case of 'purchase of shares by a company and the consequent reduction of share capital'. The relevant portion of Section 242 reads as follows:- "Section 242 (1) If, on any application made under section 241, the Tribunal is of the opinion- (a) that the company's affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed ft by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be just and equitable." 28. In this connection we do not subscribe to finding of the Tribunal that the order was passed under clause (c) of sub-Section (2) of Section 242 of the Companies Act, 2013. An order under clause (c) of sub-Section (2) of Section 242 can be passed only when after final hearing the Tribunal comes to an opinion that the company's affairs have been or are being conducted in a manner & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble High Courts. Since 7th December, 2016, the Hon'ble High Courts have no jurisdiction to entertain any petition under Section 100 of the Companies Act, 1956. Therefore now onward, the question of confirmation by the Hon/ble High Court of a special resolution for reduction of the share capital, as stipulated under Section 100 of the Companies Act, 1956 does not arise. The provision of Section 100 has become redundant. 32. Similar is the position with Section 101 of the Companies Act, 1956, which reads as follows:- "101. Application to High Court for confirming order, objections by creditors, and settlement of list of objecting creditors. (1) Where a company has passed a resolution for reducing share capital, it may apply, by petition, to the High Court for an order confirming the reduction. (2) Where the- proposed reduction of share capital involves either the diminution of liability In respect of unpaid share capital or the payment to any shareholder of any paid- up share capital, and in any other case if the High Court so directs, the following provisions shall have effect, subject to the provisions of sub- section (3):- (a) every creditor of the company who at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 101 is entitled to object to the reduction, that either his consent to the reduction has been obtained or his debt or claim has been discharged, or has determined, or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit. (2) Where the High Court makes any such order, it may- (a) if for any special reason it thinks proper so to do, make an order directing that the company shall, during such period commencing on, or at any time after, the date of the order, as is specified in the order, add to its name as the last words thereof the words" and reduced"; and (b) make an order requiring the company to publish as the High Court directs the reasons for reduction or such other information in regard thereto as the High Court may think expedient with a view to giving proper information to the public, and, if the High Court thinks fit, the causes which led to the reduction. (3) Where a company is ordered to add to its name the words" and reduced", those words shall, until the expiration of the period specified in the order, be deemed to be part of the name of the company." 34. If we read Tribunal' in place of 'H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar, who is required to register the order and minute. The question of publication in any manner may not arise but in the interest of the company, it is required to be published in the manner as may be directed by the Tribunal. Rest of the provisions under sub-section (4) or (5) or (6) of Section 103 are required to be complied with. 37. Section 104 is 'liability of members'. The said provision has been adopted by SEBI in line with Section 103 of the Companies Act, 1956 is also required to be complied except where certain requirement of High Court's order as mentioned, is not required to be complied, in view of order passed by the Tribunal. 38. As SEBI Act is a special law, a complete code which is to be read in harmony with the provisions of Companies Act is required to be complied with by companies, including the Respondents. Similarly, the Regulations and circulars issued by SEBI are also required to be followed as they not in conflict with the Companies Act, 1956 or Companies Act, 2013 but are supplementary. Therefore, the Respondents are bound to follow all the Rules, Regulations and Circulars, except to the extent of Section 100, 101 and 102 of Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate and stand apart from each other and one, or the other may be resorted to according to the situation. That is the clearest effect of the disjunctive or in section 77. 10. The scheme of sections 397 and 406 appears to constitute a code by itself for granting relief to oppressed minority shareholders and for granting appropriate relief, a power of widest amplitude, inter alia, lifting the ban on company purchasing its shares under Court's direction, is conferred on the Court. When the Court exercises this power by directing a purchase of its shares by the Company, it would necessarily involve reduction of the capital of the Company. Is such power of the Court subject to a resolution to be adopted by the members of the Company which, when passed with statutory majority, has to be submitted to Court for confirmation ? No canon of construction would permit such an interpretation in which the statutory power of the Court for its exercise depends upon the vote of the members of the Company. This would inevitably be the situation if reduction of share capital can only be brought about by resorting to the procedure prescribed in Section 100 to 104. Additionally it would cause in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterim relief is vested with the Tribunal under sub-Section (4) of Section 242 only in such case where the Tribunal thinks it fit for regulating the company's affairs upon certain terms and conditions. In the present matter there was nothing on the record to suggest that Tribunal was required to pass order in regard to conduct of company's affairs, therefore we have doubted the order dated 24th August 2016. However, as the said order is not under challenge we refrained from interfering with the said order. 42. Insofar as the impugned order dated 30th September, 2016 is concerned, certainly it cannot be stated to be an order passed under clause (c) of sub-Section (2) of Section 242 of Companies Act, 2013 nor the Tribunal was competent to clarify the earlier impugned order giving reference to the said provision. 43. Insofar as the decision of Hon'ble Supreme Court in "Cosmo Steels Pvt. Ltd. v. Jairam Das Gupta' is concerned, we do not intend to decide whether the case of respondent is covered by the said decision or not as we have noticed that the provisions of Section 100, 101 and 102 have become redundant the power of the Hon'ble High Courts having divested to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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