IFB Agro Industries Limited Vs Sicgil India Limited (Supreme Court of India)
Recently, the Supreme Court in the landmark case of IFB Agro Industries Limited v. Sicgil India Limited and Ors held that NCLT does not have the power to exercise rectificatory jurisdiction under the section 59 of the Companies Act, 2013 for the matters that arise from the regulations framed by the regulatory bodies like SEBI.
Facts of the case.
Both Sicgil India Limited and IFB Agro Industries are the listed company. Sicgil India Limited purchased the equity shares of the Agro Industries through open market numerous times. When the shares were purchased in 2004, the total percent of shareholding of the respondent exceeded 5% of the total equity shares. As per the SEBI (PIT) Regulations, whenever, any person acquired the shares and the total percentage of such holding exceeds 5%, the acquirer shall disclose about the same to the company whose shares are being acquired.
The respondent in the present case, had acquired the additional shares but did not disclose the information as mandated under the SEBI (PIT) Regulations. As a result, there was a contravention of the said regulation. Thus, the petitioner approached the court under the section 11A of the Companies Act 1956. As per the section 11A of the Companies Act, 1956, the Company Law Board has the power to order the rectification of the register where the list of the shareholders along with their shareholdings. With the passage of the Companies Act, 2013, the section 11A of the Companies Act 1956 got replaced by the section 59 of the Companies Act, 2013 and the NCLT were set up to deal with the matters regarding companies instead of Company Law Board.
The petitioner averred that the NCLT having the rectificatory jurisdiction, has the authority to direct that the name of the respondent be removed from the shareholder’s register as the shares had been acquired by the respondent by non-complying with the SEBI (PIT) Regulations.
Court’s Observation
The Hon’ble Supreme Court agreed with the decision of the NCLAT, that the NCLT does not have the rectificatory jurisdiction under section 59 of the Companies Act 2013. The Court reasoned that for the breaches that arose out of the regulations that are issued by the regulatory bodies, only the issuing regulatory body is the competent authority to deal with the matters relating to that regulation.
The court relied on the case of Standard Chartered Bank v. Andhra Bank Financial Services Ltd and Jai Mahal Hotels v. Devraj Singh, where it has been held that whenever a case related to violation of the regulations comes before a Company Board, the Company board is under the obligation to refer the case to the appropriate authority for the determination of the case.
Thus, the decision of the court has rendered the clarity that whenever, there is a case of arising out of the regulations issued by the regulatory body, the appropriate adjudicating body is the regulatory body not the NCLT as the NCLT cannot exercise parallel jurisdiction in matters pertaining to the regulations.
The decision of the court is welcome as it will save the time of the time of the companies that could have been lost in the proceedings before the tribunal. Now, since the authority is clear, the companies can easy approach the correct authority within reasonable time.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. The short question for our consideration in this appeal relates to the scope of the rectificatory jurisdiction of the National Company Law Tribunal under Section 59 of the Companies Act, 20131. In this context, we are called upon to determine the appropriate forum for adjudication and determination of violations of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 19972, and Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 19923, framed under the Securities and Exchange Board of India Act, 19924. 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.5, 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 India6 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 Tribunal7 (hereinafter referred to as ‘Appellate Tribunal’) whereby the Appellate Tribunal set aside the judgment of the National Company Law Tribunal (hereinafter referred to as the ‘Tribunal’), allowing the company petition filed by the Appellant under Section 111A of the Companies Act, 19568, (which is Section 59 of the 2013 Act), for rectification of Members Register. The Tribunal while allowing the petition, directed the Appellant to buy-back its shares which were held by the Respondents. In appeal, the Appellate Tribunal set aside this direction on the ground that the Tribunal exceeded its jurisdiction. It is this order of the Appellate Tribunal which is impugned before us.
Relevant Facts:
3 The Appellant herein is a listed company engaged in the manufacture and sale of rectified spirit, country liquor, marine products, carbon dioxide gas etc. Respondent No. 1 is also a listed company which is engaged in the business of producing carbon dioxide gas and dry ice. Respondent No. 2 is the managing director of Respondent No. 1, Respondent No. 3 is the wife of Respondent No. 2, and Respondent Nos. 4-6 are close relatives of Respondent Nos. 2-3.
4. It is the contention of the Appellant that sometime in August 2003, Respondent No. 2 came up with a proposal for a business tie-up between the Appellant and Respondent No. 1. The Appellant is said to have rejected the proposal. It is alleged by the Appellant that after this rejection, the Respondents started acquiring shares of the Appellant from the open market with a view to eliminate competition and strengthen its own dominant position in the relevant market. As of 18.01.2004, the Respondents collectively held just under 5% of the Appellant’s total paid-up share capital.
5. On 19.01.2004, Respondent No. 1 acquired 600 equity shares of the Appellant and this resulted in the aggregate shareholding of the Respondents crossing 5% of the total paid-up share capital of the Appellant, thereby triggering Regulation 7(1)9 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 with this Regulation, the Respondents are said to have sent an intimation to the Appellant on the very next day i.e., on 20.01.2004. This intimation was received by the Appellant on 22.01.2004. The Appellant contends that the disclosure under Regulation 7(1) was not in the prescribed format.
6. Four months later, on 27.05.2004, Respondent No. 1 acquired additional shares of the Appellant, as a result whereof, its individual shareholding exceeded 5% of the total paid-up share capital of the Appellant. This individual crossing of 5% by Respondent No. 1 triggered the SEBI (PIT) Regulations. Regulation 1310 thereof provides that if any person acquires more than 5% shares of a company, then it shall make a disclosure to the acquiree Company. Respondent No. 1 admits to having failed to make this disclosure within the prescribed time. It is the stand of Respondent No. 1 that the failure to issue a notice was not an intentional mistake. The Appellant claims that it got to know about the said acquisition on 04.06.2004 when it carried out an internal investigation into the total number of shares held by the Respondents in the Appellant company.
Company Petition under Section 111A of the 1956 Act:
7. It is in the above referred factual background that on 19.07.2004, the Appellant filed a petition before the Company Law Board11 under Section 111A of the 1956 Act praying for rectification of its register by deleting the name of the Respondents as the owner of shares which are over and above the 5% threshold. As of the date of filing of the Section 111A petition, the Respondents collectively held around 8.22% of the Appellant’s paid-up share capital.
8. Upon receiving notice of the aforesaid petition, Respondent 1, on 16.08.2004, issued an intimation to the Appellant as mandated under Regulation 13 of the SEBI (PIT) Regulations. Two days later, on 18.08.2004, Respondent No. 1 allegedly sold a few shares of the Appellant and brought down its individual shareholding to 4.91%. This fact is contested, as the Appellant claims that Respondent No. 1 never reduced its shareholding. On 24.08.2004, Respondent No. 1 also wrote to the SEBI that its individual shareholding in the Appellant had crossed 5% on 27.05.2004 and that there was a delay in disclosing this to the Appellant. SEBI was informed that the individual shareholding of Respondent 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 the SEBI (SAST) Regulations as the Respondents did not make the disclosure in the proper format.
11. In so far as the exercise of power under Section 111A of the 1956 Act is concerned, the Tribunal held that in case of violation of SEBI regulations, Section 111A empowers a company to apply for rectification, and in such cases, the Tribunal is entitled to pass an order to undo the mischief. The Tribunal opined that the regulatory jurisdiction of SEBI would not bar the Tribunal from exercising its power under Section 111A of the 1956 Act. However, the Tribunal held that the powers exercised by the CLB and SEBI fall in different and distinct jurisdictional fields and therefore, the present order will not preclude SEBI from deciding any violation of its regulations. Allowing the company petition, the Tribunal held that the acquisition of shares in excess of 5% was in violation of the SEBI (PIT) Regulations and the SEBI (SAST) Regulations. The final order passed by the Tribunal is as follows:
“The present Company Petition is allowed. The Respondents having furnished the declaration at a later point of time are hereby barred from exercising their rights as to the shares acquired by them in the Petitioner Company in excess of 5% the company is hereby authorised to buy back the shares that the Respondents hold in excess of 5% of the shareholding in the Company at the rate which was prevailing on the date of presentation of the Petition or market value, whichever is higher. The Respondents are directed to hand over the share certificates and share transfer forms within 30 days of the order to the Company and in response to that the Petitioner will be liable to pay the buyback price which shall be the value of shares which was prevailing on the date of presentation of the petition or market value whichever is higher.
It is clear that the power exercised by the Company Law Board and the powers exercised by the SEBI fall in different and distinct jurisdictional fields. Therefore, the present order shall not preclude the jurisdiction of SEBI as an adjudicating authority for deciding on the violation of SEBI Regulations as have been laid down in the present petition.”
Judgment of the Appellate Tribunal:
12. The Respondents herein carried the matter to the Appellate Tribunal in appeal. The limited question before the Appellate Tribunal was whether the Tribunal was empowered 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) Regulations) thereby violating Regulations 13 and 14 of the SEBI (PIT) Regulations. He emphasized that the Respondents have admitted to the non-disclosure, and (iii) as Securities and Exchange Board of India Act, 199212, must be read in addition to, and not in derogation of the Companies Act. The Appellant is entitled to approach the Tribunal under Section 111A of the 1956 Act for rectification of the register. In support of these submissions, reliance was placed on the decisions of this Court in Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors.13, Chairman, SEBI v. Shriram Mutual Fund & Another14.
14. Mr. Shyam Divan, learned Senior Advocate appearing for the Respondents, contended that – (i) filing of a petition under Section 111A is an abuse of process; (ii) there is no violation of the SEBI (SAST) Regulations as the Respondents had given a timely intimation in the prescribed format; (iii) the Section 111A Petition did not allege any violation of the SEBI (SAST) Regulations, and no attempt was made to make any amendment to the same; (iv) the SEBI (PIT) Regulations are not applicable to Respondent Nos. 2-6 as their individual shareholding never crossed 5%. It was only Respondent No. 1 whose shareholding crossed 5%, which it inadvertently failed to disclose; (v) the SEBI (PIT) Regulations are not applicable to Respondent Nos. 2-6 as there is no concept of ‘persons acting in concert’ under the said Regulations; (vi) under section 111A (3), the Tribunal has no power to annul the transfer or to direct the buy-back of the shares.
15. Having heard both sides, we formulate the following questions for our consideration.
What is the scope and ambit of Section 111A of the 1956 Act, as amended by Section 59 of the 2013 Act, to rectify the register of members? Which is the appropriate forum for adjudication and determination of violations and consequent actions under the SEBI (SAST) Regulations 1997 and the SEBI (PIT) Regulations 1992?
Re: Interpretation and scope of Section 111A of the 1956 Act as replaced by Section 59 of the 2013 Act:
16. The reliefs claimed by the Appellant in its Company Petition under Section 111A of the 1956 Act is as under: –
“(a) Declaration that the acquisition of shares of and in the company by the Respondent Nos.1 to 6 are illegal, null and void and of no effect;
(b) 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 rectification must relate to and be confined to the facts that are evident and need no serious enquiry. The following is a comparative table indicating the legislative changes. For the purpose of the present proceeding, we can confine the examination between the 1956 Act with its 1996 amendment and the 2013 Act.
