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TMI Blog2023 (1) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter referred to as the 'SEBI (PIT) Regulations', framed under the Securities and Exchange Board of India Act, 1992 hereinafter referred to as 'the SEBI Act'. We have answered both the questions. On the first issue, following the decision of this Court in Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. & Ors. (1998) 7 SCC 105, we have held that the rectificatory jurisdiction under Section 59 of the 2013 Act is summary in nature and not intended to be exercised where there are contested facts and disputed questions. On the second issue, we have held that transactions falling within the jurisdiction of Regulatory bodies created under a statute must necessarily be subjected to their ex-ante scrutiny, enquiry and adjudication. We have, therefore, rejected the contention that the National Company Law Tribunal under Section 59 exercises a parallel jurisdiction with Securities and Exchange Board of India hereinafter referred to as 'the SEBI' or 'the Board' for addressing violations of the Regulations framed under the SEBI Act. 2. This is an appeal against the judgment of the National Company Law Appellate Tribunal Companies Appeal (AT) 240 of 2017 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed. Regulation 2(b) ―Acquirer means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. 10 Regulation 13 -(1) Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company in Form A, the number of shares or voting rights held by such person, on becoming such holder, within 2 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. of the SEBI (SAST) Regulations. Regulation 7(1) mandates that when an acquirer, either by himself or with any person acting in concert with the acquirer, acquires 5% or more of the total paid-up share capital of a company, then a disclosure has to be made to the acquiree company and the stock exchange. In compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No. 1 in the Appellant now stands below 5%. It has been submitted before us that SEBI has not taken any regulatory action. 9. During the pendency of the petition under Section 111A, the 2013 Act came into force, and the matter stood transferred to the Tribunal. The Tribunal framed just one question - Whether the acquisition of shares by the Respondents without complying with the statutory provisions of disclosure norms under SEBI Regulations is valid? Judgment of the Tribunal: 10. By its judgment dated 05.07.2017, the Tribunal held that the intimation dated 16.08.2004 is in violation of the SEBI (PIT) Regulations since the said declaration had to be filed within four working days of the receipt of intimation of allotment of shares or the acquisition of shares or voting rights, as the case may be. The Tribunal also held that the term 'person' in the SEBI (PIT) Regulations can be construed to include all other Respondents, besides Respondent No. 1, as persons acting in concert. The reason for this was that the exercise of control in the management of the Appellant would be done jointly by all the Respondents. Further, the Tribunal also held that there has been a violation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powered to pass an order of buyback while entertaining a petition under Section 111A of the 1956 Act. The Appellate Tribunal, by its order dated 06.12.2018, allowed the appeal and set aside the order of the Tribunal. Unfortunately, there is neither analysis nor any reasoning in the order of the Appellate Tribunal. In the normal course, we would have set aside the judgment of the Appellate Tribunal and remanded the matter for reconsideration. However, as a period of four years has already lapsed since the passing of the impugned order, we considered it appropriate to dispose of the present appeal finally. It is in this context that the matter was heard in detail. We will now refer to the submissions made by the learned counsel appearing on behalf of the parties. Submissions of the Parties: 13. Mr. P. Chidambaram, learned Senior Advocate on behalf of the Appellant, contended that - (i) no timely intimation in the prescribed format was given by the Respondents when Regulation 7(1) of the SEBI (SAST) Regulations got triggered; (ii) Respondent Nos. 1 - 6, as "connected persons" (as per 2(c) of the SEBI (PIT) Regulations) were "acting in concert" (as per 2(e) of the SEBI (SAST) Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Necessary directions be given for rectifying the records by deleting the names of the Respondents as owners of all shares of and in the company acquired by the Respondents; (c) Permanent injunction restraining the Respondents whether by themselves or their servants or agents or assigns or otherwise howsoever from exercising any rights or receiving any benefit in respect of the shares held by the Respondents in the company in any manner whatsoever; (d) ....... (e) ......." 17. The declaration to hold the acquisition of shares by the Respondents as null and void in a petition under Section 111A has to be examined in the context of the scope and ambit of the rectificatory jurisdiction of the Tribunal and, in particular, the specific wordings of the said provision. 18. The rectificatory powers of a Board/Company Court under Section 38 of the Companies Act, 1913, then under Section 155 of the 1956 Act, followed by Section 111A introduced by the 1996 Amendment to the 1956 Act, and finally, Section 59 of the 2013 Act, demonstrate that its essential ingredients have remained the same. It is a summary power to carry out corrections or rectifications in the register of members. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such inquiry as it thinks fit, direct any depository or company to rectify its register or records.] (4) The [Tribunal] while acting under sub-section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry. (5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the [Tribunal]. (6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the [Tribunal], of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have been suspended. (7) The provisions of sub- sections (5), (7), (9), (10) and (12) of section 111 shall, so far as may be, apply to the proceedings before the [Tribunal] under this section as they apply to the proceedings under this section.] Section 59: Rectification of register of members 59. (1) If the name of any person is, without suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both." 19. The scope and ambit of Section 155 of the 1956 Act, as it then existed, fell for consideration in a decision of this Court in Ammonia Supplies (supra). The application for rectification in Ammonia's case was filed under Section 155, and it was submitted that the scope for rectification under Section 155 is enlarged in comparison with the position as it were under Section 38 of the 1913 Act. Rejecting the argument, this Court in Ammonia held that the jurisdiction exercised by the court for rectification of the register of members is essentially limited. The comparative analysis in Ammonia assumes importance as a similar submission is made before us by Mr. Chidambaram that the scope and jurisdiction of the Tribunal under Section 59 of the 2013 Act is wide when compared with Section 111A of the 1956 Act as amended in 1996. The relevant portion of the judgment in Ammonia is as under: - "26. .... 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As aforesaid, the very word "rectification" connotes something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. Rectification in other words is the failure on the part of the company to comply with the directions under the Act. ... 31. Sub-section (1)(a) of Section 155 refers to a case where the name of any person is without sufficient cause entered or omitted in the Register of Members of a company. The word "sufficient cause" is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the court has to exercise its jurisdiction. It cannot be doubted that in spite of exclusiveness to decide all matters pertaining to the rectification it has to act within the said four corners and adjudication of such matters cannot be doubted to be summary in nature. So, whenever a question is raised the court has to adjudicate on the facts and circumstances of each ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once the provisions of the Take Over Regulations are invoked then the entire jurisdiction by virtue of the provisions of Section 15Y and 20A is exclusively conferred on the SEBI authorities. Learned counsel's argument that under Section 15Y the only jurisdiction conferred on an adjudicating officer is to penalise the party and not for rectification also cannot be accepted because the provisions of Section 15Y are to be read together with Section 20A of the SEBI Act which inter-alia confers a power on the board to pass any order which includes direction as contemplated under Regulation 44 of the Takeover Regulations..... ... 43. I am of the opinion that on plain and simple reading of section 15Y read with section 20A of the Act all the cases arising out of the breach and Take Over Regulation must fall within the exclusive domain of SEBI and cannot be complained in the court of Law by virtue of express bar contained under section 15Y and section 20A of the SEBI Act. I am also of the further opinion that there is no doubt that there is a common law right in a shareholder to apply for rectification of the share register even though it is not his own share in respect of which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrict the right of a holder of securities, to transfer such securities. This is another feature which is indicative of the limited scope and extent of the power of rectification of the register. 25. For the reason stated above, we are of the opinion that the company petition under Section 111A of the 1956 Act for a declaration that the acquisition of shares by the Respondents as null and void is misconceived. The Tribunal should have directed the Appellant to seek such a declaration before the appropriate forum. The Appellate Tribunal is, therefore, justified in allowing the appeal and setting aside the order of the Tribunal. Re: appropriate forum for enquiry and adjudication of violations of the SEBI Regulations: 26. There is another perspective in which the legality and propriety of the company petition under Section 111A for declaring the acquisition of shares as null and void for violation of SEBI Regulations could be judged - Which is the appropriate forum for adjudication and determination of violations and consequent actions under the SEBI (SAST) Regulations and the SEBI (PIT) Regulations? 27. Public administration is dynamic and ever-evolving. It is now established t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Chapters-IV, VI-A, read with Section 30, delineate the legislative Section 30, Securities and Exchange Board of India Act, 1992, administrative Chapter IV, Securities and Exchange Board of India Act, 1992 and adjudicatory Chapter VI-A, Securities and Exchange Board of India Act, 1992 functions of the Board. In its normative or legislative functions, the SEBI can formulate regulations encompassing various aspects having a bearing on the securities market. It should be noted that the SEBI Act, Rules, Regulations and Circulars made or issued under the legislation, are constantly evolving with a concerted aim to enforce order in the securities market and promote its healthy growth while protecting investor wealth. In so far as its administrative/executive power goes, it has the power to regulate the business of stock exchanges and securities market. The Board provides for the registration and regulation of stock brokers, share transfer agents, depositories, venture capital funds, collective investment schemes etc. It also has the power to prohibit various transactions which interfere with the health of the securities market. 31. In the exercise of its adjudicatory powers under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation 13 places a continual obligation of disclosure. Regulation 14 provides that any person violating the said Regulations shall be liable for action under Sections 11, 11B, 11D, 24 and Chapter VI-A of the SEBI Act. 34. The above-referred regulatory regime is all-encompassing. It prescribes the prohibition, which is normative. The Regulation also provides for the method of detecting the violation, the methods of investigation, the manner of appointment of the investigating authority, the timeline within which the report is to be submitted, the opportunity for an insider to respond to the report as well as the final decision to be taken by the SEBI, and lastly, the consequential orders and restitutionary directions which the Board is entitled to pass. It is also important to note that the SEBI has the power under Regulation 11 to pass necessary directions to remedy an act of insider trading in order to have a complete and comprehensive control over the securities market. 35. Having considered the comprehensive role of the SEBI in regulating the securities market with respect to insider trading, we are of the opinion that the important role of the Regulator cannot be circumvent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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