IFB AGRO INDUSTRIES LIMITED versus SICGIL INDIA LIMITED AND OTHERS on 4 January 2023

IFB AGRO INDUSTRIES LIMITED

v.

SICGIL INDIA LIMITED AND OTHERS

Civil Appeal No. 2030 of 2019

JANUARY 04, 2023

[A. S. BOPANNA AND

PAMIDIGHANTAM SRI NARASIMHA, JJ.]

Companies Act, 2013 : s. 59 – Rectification of register ofmembers – Scope of Rectificatory jurisdiction of National CompanyLaw tribunal-NCLT – Violation of – On facts, respondent No.1acquired shares of the appellant exceeding 5% of its total sharesfrom the open market and failed to make disclosure as per Reg.7(1)of SAST Regulations and Reg. 13 of PIT Regulations – Appellantfiled petition before NCLT u/s 111A of the 1956 Act (now s. 59 ofthe 2013 Act) for rectification of members register by deleting thename of the respondents as the owners of shares which are over5% – Allowed by NCLT holding that the acquisition of shares inexcess of 5% was in violation of the SEBI (PIT) Regulations andthe SEBI (SAST) Regulations and directed the appellant to buy backits shares which were held by the respondent – However, the appellatecourt set aside this direction on the ground that the tribunal exceededits jurisdiction – On appeal, held: Appellant is not justified ininvoking the jurisdiction of the CLB (now NCLT) u/s. 111A forviolation of SEBI regulations – Rectificatory jurisdiction u/s. 59 issummary in nature and cannot be exercised where there arecontested facts and disputed questions – If a petition seeks anadjudication under the garb of rectification, then the NCLT wouldnot have jurisdiction, and it would be duty-bound to re-direct theparties to approach the relevant forum – Further, the SEBI has acomprehensive role in regulating the securities market – Regulatorcannot be circumvented by asking for rectification – It is only forthe regulator to determine a violation of the provisions of the SEBIAct and the Regulations – NCLT exceeded its jurisdiction – Thus,the appellant was correct in setting aside the order of the NCLT –Securities and Exchange Board of India (Substantial Acquisitionof Shares and Takeover) Regulations, 1997 – reg. 7(1) – Securitiesand Exchange Board of India (Prohibition of Insider Trading)Regulations, 1992 – reg. 13 – Companies Act, 1956 – s. 111A.

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528SUPREME COURT REPORTS

ADismissing the appeal, the Court

HELD: 1.1 The rectificatory jurisdiction under Section 59of the Companies Act,2013 is summary in nature and not intendedto be exercised where there are contested facts and disputedquestions. Transactions falling within the jurisdiction of Regulatorybodies created under a statute must necessarily be subjected toBtheir ex- ante scrutiny, enquiry and adjudication. Therefore, thesubmission that the National Company Law tribunal under Section59 exercises a parallel jurisdiction with Securities and ExchangeBoard of India for addressing violations of the Regulations framedunder the SEBI Act is rejected. The scope and ambit of Section155 of the 1956 Act, as it then existed, fell for consideration in aCdecision of this Court in Ammonia Supplies’s case. In Ammonia’scase it was held that the jurisdiction exercised by the court forrectification of the register of members is essentially limited. [Para1 and 19][533-B-C, D-E; 542-E-F]

1.2 While interpreting Section 155, it was held in Ammonia’sDcase that the power of CLB is narrow and can only considerquestions of rectification. If a petition seeks an adjudication underthe garb of rectification, then the CLB would not have jurisdiction,and it would be duty-bound to re-direct the parties to approachthe relevant forum. The words ‘sufficient cause’ cannot beinterpreted in a manner which would enlarge the scope of theEprovision. The decision in Ammonia was followed by this Courteven after the deletion of Section 155 and insertion of Section111A. [Paras 20 and 21][544-F-H]

1.3 The principle enunciated in Ammonia’s case relating tothe jurisdiction of a tribunal with respect to the rectification ofthe register is well-recognized and consistently followed. Sub-Fsection (3) of Section 59 recognizes the overarching right to holdand transfer securities with the concomitant entitlement of voting.This is a precious right, and that is the reason why the Parliamentfound it necessary to caution that the provision of this Sectionshall not restrict the right of a holder of securities, to transfersuch securities. This is another feature which is indicative of theGlimited scope and extent of the power of rectification of theregister. Thus, the company petition under Section 111A of the1956 Act for a declaration that the acquisition of shares by theRespondents as null and void is misconceived. The tribunal shouldhave directed the appellant to seek such a declaration before theHappropriate forum. The appellate tribunal is, thus, justified in allowing the appeal and setting aside the order of the tribunal.[Paras 24 and 25][547-A-D]

1.5 In the exercise of its adjudicatory powers under Section15-I, the SEBI has the power to appoint officers for holding aninquiry, give a reasonable opportunity to the person concernedand determine if there is any transgression of the rules prescribed.The Board has the power to impose penalties for violations andalso restitute the parties. The adjudicatory power also includesthe power to settle administrative and civil proceedings underSection 15JB of the SEBI Act. [Para 31][549-B-C]

1.6 The regulatory jurisdiction of the Board also includesex-ante powers to predict a possible violation and take preventivemeasures. The exercise of ex-ante jurisdiction necessitates thecalling of information as provided in Sections 11(2)(i), 11(2)(ia)and 11(2)(ib) of the SEBI Act. Where the Board has a reasonableground to believe that a transaction in the securities market isgoing to take place in a manner detrimental to the interests ofthe stakeholders or that any intermediary has violated theprovisions of the Act, it may investigate into the matter underSection 11(C) of the SEBI Act. In other words, being the real-time security market regulator, the Board is entitled to keep awatch, predict and even act before a violation occurs. It is in thiscontext, that the SEBI (SAST) Regulations and the SEBI (PIT)Regulations, are to be understood. [Para 32][549-C-F]

1.7 The SEBI (PIT) Regulation prohibits dealing,communicating etc., on matters relating to insider trading. Evenif there is a suspicion about the transgression of the prohibition,the Board has the power to inquire (Regulation 4A) and come toa prime facie conclusion about the need to investigate (Regulation5). Chapter III of the said Regulations provides for the entireprocedure to be followed in the inquiry process. For an effectiveexercise of its ex-ante powers, the Board has provided the policyon disclosures in Chapter IV of the said Regulations. UnderRegulation 13, any person holding more than 5% shares or votingrights in a company, shall disclose to the company within fourworking days, the number of shares or the extent of voting rightsheld by such person. Regulation 13 places a continual obligationof disclosure. Regulation 14 provides that any person violating AB

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Athe said Regulations shall be liable for action under Sections 11,11B, 11D, 24 and Chapter VI-A of the SEBI Act. [Para 33][549-F-H; 550-A-B]1.8 The regulatory regime is all-encompassing. It prescribesthe prohibition, which is normative. The Regulation also providesfor the method of detecting the violation, the methods ofBinvestigation, the manner of appointment of the investigatingauthority, the timeline within which the report is to be submitted,the opportunity for an insider to respond to the report as well asthe final decision to be taken by the SEBI, and lastly, theconsequential orders and restitutionary directions which theBoard is entitled to pass. The SEBI has the power underCRegulation 11 to pass necessary directions to remedy an act ofinsider trading in order to have a complete and comprehensivecontrol over the securities market. [Para 34][550-C-E]

1.9 Having considered the comprehensive role of the SEBIin regulating the securities market with respect to insider trading,Dthe important role of the Regulator cannot be circumvented bysimply asking for rectification under Section 111A of the 1956Act. Such an approach is impermissible. The scrutiny andexamination of a transaction allegedly in violation of the SEBI(PIT) Regulations will have to be processed through theregulations and remedies provided therein. [Para 35][550-E-F]E1.10 When Constitutional Courts are called upon tointerpret provisions affecting the exercise of powers andjurisdictions of these regulatory bodies, it is the duty of suchCourts to ensure that transactions falling within the province ofthe regulators are necessarily subjected to their scrutiny andregulation. This will ensure that the regulatory body, chargedFwith the duty to protect the consumers has real time control overthe sector, thus, realizing the purpose of their constitution. [Para36][550-G-H]

1.11 The position with respect to the SEBI (SAST)Regulations is similar to that of the SEBI (PIT) Regulations.GRegulation 7 of Chapter III obligates the acquirer of more than5% shares in a company to disclose the same to the companyand the stock exchange. This is the prohibition, and non-disclosureis punitive. Chapter V deals with investigation and action by theBoard, which includes the power of the Board to appoint aninvestigating officer (Regulation 38), the issuance of show-causeH

notice to the acquirer (Regulation 39), the obligation of theinvestigating authority to submit a report at the earliest(Regulation 41), the duty to supply the report to the acquirer andgive him an opportunity of hearing before passing penal orders(Regulation 42) and lastly, the powers of the Board to take action/pass directions under Chapter VI-A and Section 24 of the SEBIAct (Regulation 44). Regulation 45 provides for penalties for non-compliance with the said Regulations. The liability will be in termsof the Regulations and the SEBI Act. The SEBI (SAST)Regulation is a comprehensive scheme providing for inquiry,investigation, submission of report by the investigating officer,procedural safeguards in favor of the acquirer, and finally, therestitutionary order/directions to be passed by the Board. Thiswhole procedure cannot be short-circuited by making anapplication under Section 111A of the 1956 Act on the groundthat there exists parallel jurisdiction with the SEBI and CLB/tribunal. The transaction complained of must suffer scrutiny bythe regulator, and it is only for the regulator to determine aviolation of the provisions of the SEBI Act and the Regulations.[Para 37][551-A-E]

1.12 Having considered the matter from a differentperspective, the appellant is not justified in invoking thejurisdiction of the CLB under Section 111A of the Act for violationof SEBI regulations. The tribunal committed an error inentertaining and allowing the company petition filed under Section111A of the 1956 Act. Though the reasoning adopted by theappellate tribunal in the impugned order is not concurred with,the conclusion that the tribunal exceeded its jurisdiction isaccepted and therefore, the appellate tribunal was correct insetting aside the judgment passed by the tribunal. [Para 38][551-F-H]

Ammonia Supplies Corporation (P) Ltd. v. ModernPlastic Containers Pvt. Ltd. & Ors. (1998) 7 SCC 105: [1998] 1 Suppl. SCR 413 – relied on.

Mannalal Khetan & Ors. v. Kedar Nath Khetan & Ors.(1977) 2 SCC 424 : [1977] 2 SCR 190; Chairman, SEBIv. Shriram Mutual Fund & Another (2006) 5 SCC 361: [2006] 2 Suppl. SCR 833; Standard Chartered Bankv. Andhra Bank Financial Services Ltd. & Ors. (2006)6 SCC 94 : [2006] 2 Suppl. SCR 1; Jai Mahal Hotels(P) Ltd. v. Devraj Singh & Ors. (2016) 1 SCC 423 :

[2015] 11 SCR 323; Kesha Appliances (P) Ltd. & Ors.

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Av. Royal Holdings Services Ltd. & Ors. (2006) 1 BomCR 545; Zandu Pharmaceutical Works Ltd. v.Devkumarvaidya & Ors. (2009) 89 CLA 65; B.S.EBrokers’ Forum, Bombay & Ors. v. Securities andExchange Board of India & Ors., (2001) 3 SCC 482;Sahara India Real Estate Corporation Ltd. & Ors. v.BSEBI & Anr., (2013) 1 SCC 1 : [2012] 12 SCR 1;Securities and Exchange Board of India v. Kishore RAjmera, (2016) 6 SCC 368 : [2016] 1 SCR 1118;Securities and Exchange Board of India v. Ajay Agarwal,(2010) 3 SCC 765 : [2010] 3 SCR 70; Prakash Guptav. Securities and Exchange Board of India, (2021) SCCCOnLine SC 485 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No.2030

Fof 2019.

From the Judgment and Order dated 06.12.2018 of the NationalCompany Law Appellate Tribunal at New Delhi in Company Appeal(AT) No.240 of 2017.

P. Chidambaram, Sr. Adv., Soumya Ray Chowdhury, MaheshAgarwal, Gaurav Gupta, Himanshu Satija, Nishant Rao, Rajesh Kumar,GE. C. Agrawala, Advs. for the Appellant.

Shyam Divan, Sr. Adv., Dhruv Dewan, Ms. Reena Choudhary,Ms. Yashna Mehta, Ravilochan Daliparthi, Prayuj Sharma, S. S. Shroff,Advs. for the Respondents.

IFB AGRO INDUSTRIES LTD. v. SICGIL INDIA LTD. ANDOTHERS

The Judgment of the Court was delivered by PAMIDIGHANTAM SRI NARASIMHA, J.

1. The short question for our consideration in this appeal relatesto the scope of the rectificatory jurisdiction of the National CompanyLaw Tribunal under Section 59 of the Companies Act, 2013[1]. In thiscontext, we are called upon to determine the appropriate forum foradjudication and determination of violations of the Securities andExchange Board of India (Substantial Acquisition of Shares and Takeover)Regulations, 1997[2], and Securities and Exchange Board of India(Prohibition of Insider Trading) Regulations, 1992[3], framed under theSecurities and Exchange Board of India Act, 1992[4]. We have answeredboth the questions. On the first issue, following the decision of this Courtin Ammonia Supplies Corporation (P) Ltd. v. Modern PlasticContainers Pvt. Ltd. & Ors.[5], we have held that the rectificatoryjurisdiction under Section 59 of the 2013 Act is summary in nature andnot intended to be exercised where there are contested facts and disputedquestions. On the second issue, we have held that transactions fallingwithin the jurisdiction of Regulatory bodies created under a statute mustnecessarily be subjected to their ex- ante scrutiny, enquiry andadjudication. We have, therefore, rejected the contention that the NationalCompany Law Tribunal under Section 59 exercises a parallel jurisdictionwith Securities and Exchange Board of India[6]for addressing violationsof the Regulations framed under the SEBI Act.

2. This is an appeal against the judgment of the National CompanyLaw Appellate Tribunal[7](hereinafter referred to as ‘Appellate Tribunal’)whereby the Appellate Tribunal set aside the judgment of the NationalCompany Law Tribunal (hereinafter referred to as the ‘Tribunal’),allowing the company petition filed by the Appellant under Section 111Aof the Companies Act, 1956[8], (which is Section 59 of the 2013 Act), forrectification of Members Register. The Tribunal while allowing the petition, 1 hereinafter referred to as the ‘2013 Act’.

2 hereinafter referred to as the ‘SEBI (SAST) Regulations’

3 hereinafter referred to as the ‘SEBI (PIT) Regulations’

4 hereinafter referred to as ‘the SEBI Act’.

5 (1998) 7 SCC 105

6 hereinafter referred to as ‘the SEBI’ or ‘the Board’.

7 Companies Appeal (AT) 240 of 2017 of the National Company Law AppellateTribunal dated 06.12.2018

8 hereinafter referred to as the ‘1956 Act’.

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Adirected the Appellant to buy-back its shares which were held by theRespondents. In appeal, the Appellate Tribunal set aside this directionon the ground that the Tribunal exceeded its jurisdiction. It is this orderof the Appellate Tribunal which is impugned before us.

Relevant Facts:

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3. The Appellant herein is a listed company engaged in themanufacture and sale of rectified spirit, country liquor, marine products,carbon dioxide gas etc. Respondent No. 1 is also a listed company whichis engaged in the business of producing carbon dioxide gas and dry ice.Respondent No. 2 is the managing director of Respondent No. 1,CRespondent No. 3 is the wife of Respondent No. 2, and RespondentNos. 4-6 are close relatives of Respondent Nos. 2-3.

4. It is the contention of the Appellant that sometime in August2003, Respondent No. 2 came up with a proposal for a business tie-upbetween the Appellant and Respondent No. 1. The Appellant is said toDhave rejected the proposal. It is alleged by the Appellant that after thisrejection, the Respondents started acquiring shares of the Appellant fromthe open market with a view to eliminate competition and strengthen itsown dominant position in the relevant market. As of 18.01.2004, theRespondents collectively held just under 5% of the Appellant’s totalpaid-up share capital.E

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5. On 19.01.2004, Respondent No. 1 acquired 600 equity sharesof the Appellant and this resulted in the aggregate shareholding of theRespondents crossing 5% of the total paid-up share capital of theAppellant, thereby triggering Regulation 7(1)[9]of the SEBI (SAST)Regulations. Regulation 7(1) mandates that when an acquirer, either byFhimself or with any person acting in concert with the acquirer, acquires 9 Regulation 7(1) –

Any acquirer, who acquires shares or voting rights which (taken together with shares orvoting rights, if any, held by him) would entitle him to more than five per cent or ten percent or fourteen per cent or fifty four per cent or seventy four per cent shares or votingrights in a company, in any manner whatsoever, shall disclose at every stage theGaggregate of his shareholding or voting rights in that company to the company and tothe 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 acquireshares or voting rights in the target company, or acquires or agrees to acquire controlover the target company, either by himself or with any person acting in concert with theHacquirer.

5% or more of the total paid-up share capital of a company, then adisclosure has to be made to the acquiree company and the stockexchange. In compliance with this Regulation, the Respondents are saidto have sent an intimation to the Appellant on the very next day i.e., on20.01.2004. This intimation was received by the Appellant on 22.01.2004.The Appellant contends that the disclosure under Regulation 7(1) wasnot in the prescribed format.

6. Four months later, on 27.05.2004, Respondent No. 1 acquiredadditional shares of the Appellant, as a result whereof, its individualshareholding exceeded 5% of the total paid-up share capital of theAppellant. This individual crossing of 5% by Respondent No. 1 triggeredthe SEBI (PIT) Regulations. Regulation 13[10]thereof provides that ifany person acquires more than 5% shares of a company, then it shallmake a disclosure to the acquiree Company. Respondent No. 1 admitsto having failed to make this disclosure within the prescribed time. It isthe stand of Respondent No. 1 that the failure to issue a notice was notan intentional mistake. The Appellant claims that it got to know aboutthe said acquisition on 04.06.2004 when it carried out an internalinvestigation into the total number of shares held by the Respondents inthe 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 Board[11]underSection 111A of the 1956 Act praying for rectification of its register bydeleting the name of the Respondents as the owner of shares which areover and above the 5% threshold. As of the date of filing of the Section111A petition, the Respondents collectively held around 8.22% of theAppellant’s paid-up share capital.

8. Upon receiving notice of the aforesaid petition, RespondentNo. 1, on 16.08.2004, issued an intimation to the Appellant as mandatedunder Regulation 13 of the SEBI (PIT) Regulations. Two days later, on 10 Regulation 13 –

(1) Any person who holds more than 5% shares or voting rights in any listed companyshall disclose to the company in Form A, the number of shares or voting rights held bysuch person, on becoming such holder, within 2 working days of: (a) the receipt ofintimation of allotment of shares; or (b) the acquisition of shares or voting rights, as thecase may be.

11hereinafter referred to as ‘the CLB’.

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A18.08.2004, Respondent No. 1 allegedly sold a few shares of the Appellantand brought down its individual shareholding to 4.91%. This fact iscontested, as the Appellant claims that Respondent No. 1 never reducedits shareholding. On 24.08.2004, Respondent No. 1 also wrote to theSEBI that its individual shareholding in the Appellant had crossed 5% on27.05.2004 and that there was a delay in disclosing this to the Appellant.BSEBI was informed that the individual shareholding of Respondent No.1 in the Appellant now stands below 5%. It has been submitted beforeus that SEBI has not taken any regulatory action.

9. During the pendency of the petition under Section 111A, the2013 Act came into force, and the matter stood transferred to the Tribunal.CThe Tribunal framed just one question - Whether the acquisition ofshares by the Respondents without complying with the statutoryprovisions of disclosure norms under SEBI Regulations is valid?

Judgment of the Tribunal:

D10. By its judgment dated 05.07.2017, the Tribunal held that theintimation dated 16.08.2004 is in violation of the SEBI (PIT) Regulationssince the said declaration had to be filed within four working days of thereceipt of intimation of allotment of shares or the acquisition of shares orvoting rights, as the case may be. The Tribunal also held that the term‘person’ in the SEBI (PIT) Regulations can be construed to include allEother Respondents, besides Respondent No. 1, as persons acting inconcert. The reason for this was that the exercise of control in themanagement of the Appellant would be done jointly by all theRespondents. Further, the Tribunal also held that there has been a violationof the SEBI (SAST) Regulations as the Respondents did not make theFdisclosure in the proper format.

11. In so far as the exercise of power under Section 111A of the1956 Act is concerned, the Tribunal held that in case of violation ofSEBI regulations, Section 111A empowers a company to apply forrectification, and in such cases, the Tribunal is entitled to pass an orderGto undo the mischief. The Tribunal opined that the regulatory jurisdictionof SEBI would not bar the Tribunal from exercising its power underSection 111A of the 1956 Act. However, the Tribunal held that the powersexercised by the CLB and SEBI fall in different and distinct jurisdictionalfields and therefore, the present order will not preclude SEBI fromdeciding any violation of its regulations. Allowing the company petition,H

the Tribunal held that the acquisition of shares in excess of 5% was inviolation 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 Respondentshaving furnished the declaration at a later point of time are hereby barred from exercising their rights asto the shares acquired by them in the Petitioner Company inexcess of 5% the company is hereby authorised to buy backthe shares that the Respondents hold in excess of 5% of theshareholding in the Company at the rate which was prevailingon the date of presentation of the Petition or market value,whichever is higher. The Respondents are directed to handover the share certificates and share transfer forms within 30days of the order to the Company and in response to that thePetitioner will be liable to pay the buyback price which shallbe the value of shares which was prevailing on the date ofpresentation of the petition or market value whichever ishigher.

It is clear that the power exercised by the Company Law Boardand the powers exercised by the SEBI fall in different anddistinct jurisdictional fields. Therefore, the present order shallnot preclude the jurisdiction of SEBI as an adjudicatingauthority for deciding on the violation of SEBI Regulationsas have been laid down in the present petition.”

Judgment of the Appellate Tribunal:

12. The Respondents herein carried the matter to the AppellateTribunal in appeal. The limited question before the Appellate Tribunalwas whether the Tribunal was empowered to pass an order of buybackwhile entertaining a petition under Section 111A of the 1956 Act. TheAppellate Tribunal, by its order dated 06.12.2018, allowed the appealand set aside the order of the Tribunal. Unfortunately, there is neitheranalysis nor any reasoning in the order of the Appellate Tribunal. In thenormal course, we would have set aside the judgment of the AppellateTribunal and remanded the matter for reconsideration. However, as aperiod of four years has already lapsed since the passing of the impugnedorder, 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 AB

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Ato the submissions made by the learned counsel appearing on behalf ofthe parties.

Submissions of the Parties:

13. Mr. P. Chidambaram, learned Senior Advocate on behalf ofthe Appellant, contended that – (i) no timely intimation in the prescribedBformat 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.CHe emphasized that the Respondents have admitted to the non-disclosure,and (iii) as Securities and Exchange Board of India Act, 1992[12], must beread in addition to, and not in derogation of the Companies Act. TheAppellant is entitled to approach the Tribunal under Section 111A of the1956 Act for rectification of the register. In support of these submissions,reliance was placed on the decisions of this Court in Mannalal KhetanD& Ors. v. Kedar Nath Khetan & Ors.[13], Chairman, SEBI v. ShriramMutual Fund & Another[14].

14. Mr. Shyam Divan, learned Senior Advocate appearing for theRespondents, contended that – (i) filing of a petition under Section 111Ais an abuse of process; (ii) there is no violation of the SEBI (SAST)ERegulations as the Respondents had given a timely intimation in theprescribed format; (iii) the Section 111A Petition did not allege any violationof the SEBI (SAST) Regulations, and no attempt was made to makeany amendment to the same; (iv) the SEBI (PIT) Regulations are notapplicable to Respondent Nos. 2-6 as their individual shareholding neverFcrossed 5%. It was only Respondent No. 1 whose shareholding crossed5%, which it inadvertently failed to disclose; (v) the SEBI (PIT)Regulations are not applicable to Respondent Nos. 2-6 as there is noconcept of ‘persons acting in concert’ under the said Regulations; (vi)under section 111A (3), the Tribunal has no power to annul the transferor to direct the buy-back of the shares.G15. Having heard both sides, we formulate the following questionsfor our consideration.

12 hereinafter referred to as ‘the SEBI Act’.13 (1977) 2 SCC 424H14 (2006) 5 SCC 361

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 ofmembers? Which is the appropriate forum for adjudication anddetermination 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 1956Act as replaced by Section 59 of the 2013 Act:

16. The reliefs claimed by the Appellant in its Company Petitionunder Section 111A of the 1956 Act is as under: -

“(a) Declaration that the acquisition of shares of and in thecompany by the Respondent Nos.1 to 6 are illegal, null andvoid and of no effect; (b) Necessary directions be given for rectifying the recordsby deleting the names of the Respondents as owners of allshares of and in the company acquired by the Respondents;

(c) Permanent injunction restraining the Respondents whetherby themselves or their servants or agents or assigns orotherwise howsoever from exercising any rights or receivingany benefit in respect of the shares held by the Respondentsin the company in any manner whatsoever; (d) …….

(e) …….”

17. The declaration to hold the acquisition of shares by theRespondents as null and void in a petition under Section 111A has to beexamined in the context of the scope and ambit of the rectificatoryjurisdiction of the Tribunal and, in particular, the specific wordings of thesaid provision.

18. The rectificatory powers of a Board/Company Court underSection 38 of the Companies Act, 1913, then under Section 155 of the1956 Act, followed by Section 111A introduced by the 1996 Amendmentto the 1956 Act, and finally, Section 59 of the 2013 Act, demonstrate thatits essential ingredients have remained the same. It is a summary powerto carry out corrections or rectifications in the register of members. Therectification must relate to and be confined to the facts that are evidentand need no serious enquiry. The following is a comparative table A

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Aindicating the legislative changes. For the purpose of the presentproceeding, we can confine the examination between the 1956 Act withits 1996 amendment and the 2013 Act.

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19. The scope and ambit of Section 155 of the 1956 Act, as it thenexisted, fell for consideration in a decision of this Court in AmmoniaESupplies (supra). The application for rectification in Ammonia’s casewas filed under Section 155, and it was submitted that the scope forrectification under Section 155 is enlarged in comparison with the positionas it were under Section 38 of the 1913 Act. Rejecting the argument,this Court in Ammonia held that the jurisdiction exercised by the courtFfor rectification of the register of members is essentially limited. Thecomparative analysis in Ammonia assumes importance as a similarsubmission is made before us by Mr. Chidambaram that the scope andjurisdiction of the Tribunal under Section 59 of the 2013 Act is widewhen compared with Section 111A of the 1956 Act as amended in 1996.The relevant portion of the judgment in Ammonia is as under: - G

“26. …. There could be no doubt any question raised withinthe peripheral field of rectification, it is the court under Section155 alone which would have exclusive jurisdiction. However,the question raised does not rest here. In case any claim isbased on some seriously disputed civil rights or title, denial H

of any transaction or any other basic facts which may be thefoundation to claim a right to be a member and if the courtfeels such claim does not constitute to be a rectification butinstead seeking adjudication of basic pillar some such factsfalling outside the rectification, its discretion to send a partyto seek his relief before the civil court first for the adjudicationof such facts, it cannot be said such right of the court to havebeen taken away merely on account of the deletion of theaforesaid proviso. Otherwise under the garb of rectificationone may lay claim of many such contentious issues foradjudication not falling under it. Thus in other words, thecourt under it has discretion to find whether the dispute raisedis really for rectification or is of such a nature that unlessdecided first it would not come within the purview ofrectification. The word “rectification” itself connotes someerror which has crept in requiring correction. Error wouldonly mean everything as required under the law has beendone yet by some mistake the name is either omitted or wronglyrecorded in the Register of the company.

27. In other words, in order to qualify for rectification, everyprocedure as prescribed under the Companies Act beforerecording the name in the register of the company has to bestated to have been complied with by the applicant…. TheCourt has to examine on the facts of each case whether anapplication is for rectification orsomething else. So field orperipheral jurisdiction of the court under it would be whatcomes under rectification, not projected claims under the garbof rectification.So far exercising of power for rectificationwithin its field there could be no doubt the Court as referredunder Section 155 read with Section 2 (11) and Section 10, itis the Company Court alone has exclusive jurisdiction…Butthis does not mean by interpreting such “court havingexclusive jurisdiction to include within it what is not coveredunder it, merely because it is clocked under the nomenclaturerectification does not mean the court cannot see the substanceafter removing the cloak.

28. Question for scrutiny before us is the peripheral fieldwithin which the Court could exercise its jurisdiction for AB

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rectification. As aforesaid, the very word “rectification”connotes something what ought to have been done but byerror not done and what ought not to have been done wasdone requiring correction. Rectification in other words is thefailure on the part of the company to comply with the directionsunder the Act.

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31. Sub-section (1)(a) of Section 155 refers to a case wherethe name of any person is without sufficient cause entered oromitted in the Register of Members of a company. The wordC“”sufficient cause is to be tested in relation to the Act and theRules. Without sufficient cause entered or omitted to be enteredmeans done or omitted to do in contradiction of the Act andthe Rules or what ought to have been done under the Act andthe Rules but not done. Reading of this sub-clause spells outthe limitation under which the court has to exercise itsDjurisdiction.It cannot be doubted that in spite of exclusivenessto decide all matters pertaining to the rectification it has toact within the said four corners and adjudication of suchmatters cannot be doubted to be summary in nature. So,whenever a question is raised the court has to adjudicate onEthe facts and circumstances of each case. If it truly isrectification, all matters raised in that connection should bedecided by the court under Section 155 and if it findsadjudication of any matter not falling under it, it may direct aparty to get his right adjudicated by a civil court.….”

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20. It is evident from the above that while interpreting Section155, this Court has held that the power of CLB is narrow and can onlyconsider questions of rectification. If a petition seeks an adjudicationunder the garb of rectification, then the CLB would not have jurisdiction,and it would be duty-bound to re-direct the parties to approach the relevantGforum. The Court also held that the words ‘sufficient cause’ cannot beinterpreted in a manner which would enlarge the scope of the provision.

21. The decision in Ammonia was followed by this Court evenafter the deletion of Section 155 and insertion of Section 111A. ThisCourt, in Standard Chartered Bank v. Andhra Bank Financial Services H

Ltd. & Ors.[15]and Jai Mahal Hotels (P) Ltd. v. Devraj Singh & Ors.[16],held that even though Section 111(7) of the 1956 Act[17]seemingly enlargesthe power of the CLB, the power of rectification continues to remainsummary in nature and if any seriously disputed questions arise, theCompany Court should relegate the parties to a forum which is moreappropriate for investigation and adjudication of such disputed questions.

22. In Kesha Appliances (P) Ltd. & Ors. v. Royal HoldingsServices Ltd.& Ors.[18], the High Court of Bombay has held that:

“41. .....The contention of the learned counsel for the plaintiffthat there was a pre-existing common law right under section9 of the CPC and that pre-existing common law right is nottaken away by the provisions of Section 15Y and 20A alsocannot be accepted. It is because the common law right ofrectification which is sought to be enforced and exercised bythe plaintiff in the present case arises out of the right conferredon the basis of Take Over Regulations and once the provisionsof the Take Over Regulations are invoked then the entirejurisdiction by virtue of the provisions of Section 15Y and20A is exclusively conferred on the SEBI authorities. Learnedcounsel’s argument that under Section 15Y the only jurisdictionconferred on an adjudicating officer is to penalise the partyand not for rectification also cannot be accepted becausethe provisions of Section 15Y are to be read together withSection 20A of the SEBI Act which inter-alia confers a poweron the board to pass any order which includes direction ascontemplated under Regulation 44 of the TakeoverRegulations.....

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43. I am of the opinion that on plain and simple reading ofsection 15Y read with section 20A of the Act all the cases 15(2006) 6 SCC 94

16(2016) 1 SCC 423

17Section 111(7) - On any application under this section, the Tribunal - (a) may decideany question relating to the title of any person who is a party to the application to havehis name entered in, or omitted from, the register; (b) generally, may decide any questionwhich it is necessary or expedient to decide in connection with the application forrectification.

18(2006) 1 Bom CR 545

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Aarising out of the breach and Take Over Regulation must fallwithin the exclusive domain of SEBI and cannot be complainedin the court of Law by virtue of express bar contained undersection 15Y and section 20A of the SEBI Act. I am also of thefurther opinion that there is no doubt that there is a commonlaw right in a shareholder to apply for rectification of theBshare register even though it is not his own share in respectof which he is seeking rectification but still the said right if itflows from the provisions of Take Over Regulations thenundoubtedly it would fall within the exclusive Jurisdiction ofSEBI and not within the Jurisdiction of this court in view ofCthe express bar contained under the aforesaid statue. I am ofthe further opinion that the enactment of the amendment ofTake Over Regulation of Amending provisions of SEBI(Substantial Acquisition of Shares and Take Over) SecondAmendment (Regulation 2002) w.e.f. 9.9.2002 by providingfor the remedy under sub clause (c) and (d) of the RegulationD44 the board has been empowered to give effective relief ofRectification of Share Register by declaring cancellation ofthe Allotment and/or by directing the company not to give aneffect to the transfer if they are found to be in contrary to theTake Over Regulation.”

E23. Zandu Pharmaceutical Works Ltd. v. Devkumarvaidya &Ors.[19], is another instance where it has been held that in a case ofviolation of the SEBI Regulations, the CLB cannot exercise rectificatoryjurisdiction unless and until the SEBI, in the very first instance, decides ifthere has been a violation or not. The CLB held that:F“

“11. Most of the allegations made by the petitioner are yet tobe investigated and to be crystallised/confirmed as violationsof the law. The allegations of violation of Takeover Codeand Insider Trading is to be decided by the SEBI and similarlythe allegations of investment beyond the limit under sectionG372A of the Act and acquisition of shares creating thereby adominant undertaking under section 108A of the Act are tobe investigated and crystallised/confirmed as violations bythe Central Government. Unless it is confirmed as a violationof law, the CLB has no power to issue orders for rectification of register of members and further this Bench has no powerto declare these allegations as violations of law.”

24. The principle enunciated in Ammonia’s case relating to thejurisdiction of a Tribunal with respect to the rectification of the registeris well-recognized and consistently followed. Sub-section (3) of Section59 recognizes the overarching right to hold and transfer securities withthe concomitant entitlement of voting. This is a precious right, and that isthe reason why the Parliament found it necessary to caution that theprovision of this Section shall not restrict the right of a holder of securities,to transfer such securities. This is another feature which is indicative ofthe limited scope and extent of the power of rectification of the register.

25. For the reason stated above, we are of the opinion that thecompany petition under Section 111A of the 1956 Act for a declarationthat the acquisition of shares by the Respondents as null and void ismisconceived. The Tribunal should have directed the Appellant to seeksuch a declaration before the appropriate forum. The Appellate Tribunalis, therefore, justified in allowing the appeal and setting aside the orderof the Tribunal.

Re: appropriate forum for enquiry and adjudication ofviolations of the SEBI Regulations:

26. There is another perspective in which the legality and proprietyof the company petition under Section 111A for declaring the acquisitionof shares as null and void for violation of SEBI Regulations could bejudged - Which is the appropriate forum for adjudication and determinationof violations and consequent actions under the SEBI (SAST) Regulationsand the SEBI (PIT) Regulations?

27. Public administration is dynamic and ever-evolving. It is nowestablished that governance of certain sectors through independentregulatory bodies will be far more effective than being under the directcontrol and supervision of Ministries or Departments of the Government.Regulatory control by an independent body composed of domain expertsenables a consistent, transparent, independent, proportionate, andaccountable administration and development of the sector. All this isachieved by way of legislative enactments which establish independentregulatory bodies with specified powers and functions. They exercisepowers and functions, which have a combination of legislative, executive,and judicial features.

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A28. Another feature of these regulators is that they are impressedwith a statutory duty to safeguard the interest of the consumers and thereal stakeholders of the sector. Telecom Regulatory Authority of India[20],Insurance Regulatory and Development Authority[21], Insolvency andBankruptcy Board of India[22], Central[23]and State[24]Electricity RegulatoryCommissions and Airport Economic Regulatory Authority[25], are someBof the regulators established under their respective statutes. The SEBI[26]is one such regulator.

29. SEBI was established in 1988 to protect the interest ofinvestors in securities and to promote the development of, and toregulate, the securities market. This Court had the occasion to considerCthe regulatory role of the SEBI in maintaining an orderly and stablesecurities’ market so as to protect the interests of investors[27].

30. The statutory provisions contained in Chapters-IV, VI-A, readwith Section 30, delineate the legislative[28], administrative[29]andadjudicatory[30]functions of the Board. In its normative or legislativeDfunctions, the SEBI can formulate regulations encompassing variousaspects having a bearing on the securities market. It should be notedthat the SEBI Act, Rules, Regulations and Circulars made or issuedunder the legislation, are constantly evolving with a concerted aim toenforce order in the securities market and promote its healthy growthEwhile protecting investor wealth. In so far as its administrative/executivepower goes, it has the power to regulate the business of stock exchangesand securities market. The Board provides for the registration and 20Section 3, The Telecom Regulatory Authority of India Act, 1997.21Section 3, The Insurance Regulatory and Development Authority of India Act,1999.F22 Section 188, The Insolvency and Bankruptcy Code, 2016.

23 Section 76, The Electricity Act, 2003.

24 Section 82, The Electricity Act, 2003.

25 Section 3, The Airports Economic Regulatory Authority of India Act, 2008.

26 Section 3, Securities and Exchange Board of India Act, 1992.

27 B.S.E Brokers’ Forum, Bombay & Ors. v. Securities and Exchange Board of India &GOrs., (2001) 3 SCC 482 (Para 17); Sahara India Real Estate Corporation Ltd. & Ors.v. SEBI & Anr., (2013) 1 SCC 1 (Para 298); Securities and Exchange Board of India v.Kishore R Ajmera, (2016) 6 SCC 368 (Para 25); Securities and Exchange Board ofIndia v. Ajay Agarwal, (2010) 3 SCC 765 (Para 33-34); Prakash Gupta v. Securities andExchange Board of India, (2021) SCC OnLine SC 485 (para 102).

28 Section 30, Securities and Exchange Board of India Act, 1992.

29 Chapter IV, Securities and Exchange Board of India Act, 1992.

H30 Chapter VI-A, Securities and Exchange Board of India Act, 1992.

regulation of stock brokers, share transfer agents, depositories, venturecapital funds, collective investment schemes etc. It also has the powerto prohibit various transactions which interfere with the health of thesecurities market.

31. In the exercise of its adjudicatory powers under Section 15-I, the SEBI has the power to appoint officers for holding an inquiry, givea reasonable opportunity to the person concerned and determine if thereis any transgression of the rules prescribed. The Board has the power toimpose penalties for violations and also restitute the parties. Theadjudicatory power also includes the power to settle administrative andcivil proceedings under Section 15JB of the SEBI Act.

32. The regulatory jurisdiction of the Board also includes ex-antepowers to predict a possible violation and take preventive measures.The exercise of ex-ante jurisdiction necessitates the calling of informationas provided in Sections 11(2)(i), 11(2)(ia) and 11(2)(ib) of the SEBI Act.Where the Board has a reasonable ground to believe that a transactionin the securities market is going to take place in a manner detrimental tothe interests of the stakeholders or that any intermediary has violatedthe provisions of the Act, it may investigate into the matter under Section11(C) of the SEBI Act. In other words, being the real-time securitymarket regulator, the Board is entitled to keep a watch, predict and evenact before a violation occurs. It is in this context, that the SEBI (SAST)Regulations and the SEBI (PIT) Regulations, with which we areconcerned in this case, are to be understood.

33. The SEBI (PIT) Regulation prohibits dealing, communicatingetc., on matters relating to insider trading. Even if there is a suspicionabout the transgression of the prohibition, the Board has the power toinquire (Regulation 4A) and come to a prime facie conclusion about theneed to investigate (Regulation 5). Chapter III of the said Regulationsprovides for the entire procedure to be followed in the inquiry process.This includes – procedural safeguards to be afforded to the insider(Regulation 6), submission of the report by the investigating authority(Regulation 8), communication of findings to the insider (Regulation 9),and the final orders/directions to be passed by the Board (Regulation A

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A11). For an effective exercise of its ex-ante powers, the Board hasprovided the policy on disclosures in Chapter IV of the said Regulations.Under Regulation 13, any person holding more than 5% shares or votingrights in a company, shall disclose to the company within four workingdays, the number of shares or the extent of voting rights held by suchBperson. Regulation 13 places a continual obligation of disclosure.Regulation 14 provides that any person violating the said Regulationsshall be liable for action under Sections 11, 11B, 11D, 24 and ChapterVI-A of the SEBI Act.

34. The above-referred regulatory regime is all-encompassing. ItCprescribes the prohibition, which is normative. The Regulation alsoprovides for the method of detecting the violation, the methods ofinvestigation, the manner of appointment of the investigating authority,the timeline within which the report is to be submitted, the opportunityfor an insider to respond to the report as well as the final decision to beDtaken by the SEBI, and lastly, the consequential orders and restitutionarydirections which the Board is entitled to pass. It is also important to notethat the SEBI has the power under Regulation 11 to pass necessarydirections to remedy an act of insider trading in order to have a completeand comprehensive control over the securities market.

E35. Having considered the comprehensive role of the SEBI inregulating the securities market with respect to insider trading, we areof the opinion that the important role of the Regulator cannot becircumvented by simply asking for rectification under Section 111A ofthe 1956 Act. Such an approach is impermissible. The scrutiny andFexamination of a transaction allegedly in violation of the SEBI (PIT)Regulations will have to be processed through the regulations andremedies provided therein.

36. When Constitutional Courts are called upon to interpretGprovisions affecting the exercise of powers and jurisdictions of theseregulatory bodies, it is the duty of such Courts to ensure that transactionsfalling within the province of the regulators are necessarily subjected totheir scrutiny and regulation. This will ensure that the regulatory body,charged with the duty to protect the consumers has real time controlHover the sector, thus, realizing the purpose of their constitution.

37. The position with respect to the SEBI (SAST) Regulations issimilar to that of the SEBI (PIT) Regulations. Regulation 7 of ChapterIII obligates the acquirer of more than 5% shares in a company to disclosethe same to the company and the stock exchange. This is the prohibition,and non-disclosure is punitive. Chapter V deals with investigation andaction by the Board, which includes the power of the Board to appointan investigating officer (Regulation 38), the issuance of show-cause noticeto the acquirer (Regulation 39), the obligation of the investigating authorityto submit a report at the earliest (Regulation 41), the duty to supply thereport to the acquirer and give him an opportunity of hearing beforepassing penal orders (Regulation 42) and lastly, the powers of the Boardto take action/pass directions under Chapter VI-A and Section 24 of theSEBI Act (Regulation 44). It is significant to note that Regulation 45provides for penalties for non-compliance with the said Regulations. Theliability will be in terms of the Regulations and the SEBI Act. Hereagain, the SEBI (SAST) Regulation is a comprehensive scheme providingfor inquiry, investigation, submission of report by the investigating officer,procedural safeguards in favor of the acquirer, and finally, therestitutionary order/directions to be passed by the Board. This wholeprocedure cannot be short-circuited by making an application underSection 111A of the 1956 Act on the ground that there exists paralleljurisdiction with the SEBI and CLB/Tribunal. The transaction complainedof must suffer scrutiny by the regulator, and it is only for the regulator todetermine a violation of the provisions of the SEBI Act and theRegulations.

38. Having considered the matter from a different perspective,we are of the opinion that the Appellant is not justified in invoking thejurisdiction of the CLB under Section 111A of the Act for violation ofSEBI regulations. We are also of the opinion that the Tribunal committedan error in entertaining and allowing the company petition filed underSection 111A of the 1956 Act. Though we are not in agreement with thereasoning adopted by the Appellate Tribunal in the impugned order, weare in agreement with its conclusion that the Tribunal exceeded itsjurisdiction and therefore, the Appellate Tribunal was correct in settingaside the judgment dated 05.07.2017.

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552SUPREME COURT REPORTS

[2023] 1 S.C.R.

A39. For the reasons stated above, Civil Appeal No. 2030 of 2019arising out of the judgment dated 06.12.2018 in Company Appeal (AT)No. 240 of 2017 of the National Company Law Appellate Tribunal, NewDelhi stands dismissed. There shall be no order as to costs.

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Nidhi Jain

(Assisted by : Shashwat Jain, LCRA)

Appeal dismissed.

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