Ifb Agro Industries Limited vs Sicgil India Limited and Others

HELD: 1.1 The rectificatory jurisdiction under Section 59 of the Companies Act,2013 is summary in nature and not intended to be exercised where there are contested facts and disputed questions. Transactions falling within the jurisdiction of Regulatory bodies created under a statute must necessarily be subjected to their ex- ante scrutiny, enquiry and adjudication. Therefore, the submission that the National Company Law tribunal under Section

59 exercises a parallel jurisdiction with Securities and Exchange Board of India for addressing violations of the Regulations framed under the SEBI Act is rejected. 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’s case. In Ammonia’s case it was held that the jurisdiction exercised by the court for rectification of the register of members is essentially limited. [Para

1 and 19][533-B-C, D-E; 542-E-F]

1.2 While interpreting Section 155, it was held in Ammonia’s case that the power of CLB is narrow and can only consider questions of rectification. If a petition seeks an adjudication under 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 relevant forum. The words ‘sufficient cause’ cannot be interpreted in a manner which would enlarge the scope of the provision. The decision in Ammonia was followed by this Court even after the deletion of Section 155 and insertion of Section 111A. [Paras 20 and 21][544-F-H]

1.3 The principle enunciated in Ammonia’s case relating to the jurisdiction of a tribunal with respect to the rectification of the register is well-recognized and consistently followed. Subsection (3) of Section 59 recognizes the overarching right to hold and transfer securities with the concomitant entitlement of voting. This is a precious right, and that is the reason why the Parliament found it necessary to caution that the provision of this Section shall not 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. Thus, 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, 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 Section 15-I, the SEBI has the power to appoint officers for holding an inquiry, give a reasonable opportunity to the person concerned and determine if there is any transgression of the rules prescribed. The Board has the power to impose penalties for violations and also restitute the parties. The adjudicatory power also includes the power to settle administrative and civil proceedings under Section 15JB of the SEBI Act. [Para 31][549-B-C]

1.6 The regulatory jurisdiction of the Board also includes ex-ante powers to predict a possible violation and take preventive measures. The exercise of ex-ante jurisdiction necessitates the calling 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 reasonable ground to believe that a transaction in the securities market is going to take place in a manner detrimental to the interests of the stakeholders or that any intermediary has violated the provisions of the Act, it may investigate into the matter under Section 11(C) of the SEBI Act. In other words, being the realtime security market regulator, the Board is entitled to keep a watch, predict and even act before a violation occurs. It is in this context, 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. Even if there is a suspicion about the transgression of the prohibition, the Board has the power to inquire (Regulation 4A) and come to a prime facie conclusion about the need to investigate (Regulation 5). Chapter III of the said Regulations provides for the entire procedure to be followed in the inquiry process. For an effective exercise of its ex-ante powers, the Board has provided the policy on disclosures in Chapter IV of the said Regulations. Under Regulation 13, any person holding more than 5% shares or voting rights in a company, shall disclose to the company within four working days, the number of shares or the extent of voting rights held by such person. Regulation 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. [Para 33][549F-H; 550-A-B]

1.8 The 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. 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. [Para 34][550-C-E]

1.9 Having considered the comprehensive role of the SEBI in regulating the securities market with respect to insider trading, the important role of the Regulator cannot be circumvented by simply asking for rectification under Section 111A of the 1956 Act. Such an approach is impermissible. The scrutiny and examination of a transaction allegedly in violation of the SEBI (PIT) Regulations will have to be processed through the regulations and remedies provided therein. [Para 35][550-E-F]

1.10 When Constitutional Courts are called upon to interpret provisions affecting the exercise of powers and jurisdictions of these regulatory bodies, it is the duty of such Courts to ensure that transactions falling within the province of the regulators are necessarily subjected to their scrutiny and regulation. This will ensure that the regulatory body, charged with the duty to protect the consumers has real time control over the sector, thus, realizing the purpose of their constitution. [Para 36][550-G-H]

1.11 The position with respect to the SEBI (SAST) Regulations is similar to that of the SEBI (PIT) Regulations. Regulation 7 of Chapter III obligates the acquirer of more than 5% shares in a company to disclose the same to the company and the stock exchange. This is the prohibition, and non-disclosure is punitive. Chapter V deals with investigation and action by the Board, which includes the power of the Board to appoint an investigating officer (Regulation 38), the issuance of show-cause notice to the acquirer (Regulation 39), the obligation of the investigating authority to submit a report at the earliest (Regulation 41), the duty to supply the report to the acquirer and give 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 SEBI Act (Regulation 44). Regulation 45 provides for penalties for noncompliance with the said Regulations. The liability will be in terms of 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, the restitutionary order/directions to be passed by the Board. This whole procedure cannot be short-circuited by making an application under Section 111A of the 1956 Act on the ground that there exists parallel jurisdiction with the SEBI and CLB/tribunal. The transaction complained of must suffer scrutiny by the regulator, and it is only for the regulator to determine a violation of the provisions of the SEBI Act and the Regulations. [Para 37][551-A-E]

1.12 Having considered the matter from a different perspective, the appellant is not justified in invoking the jurisdiction of the CLB under Section 111A of the Act for violation of SEBI regulations. The tribunal committed an error in entertaining and allowing the company petition filed under Section 111A of the 1956 Act. Though the reasoning adopted by the appellate tribunal in the impugned order is not concurred with, the conclusion that the tribunal exceeded its jurisdiction is accepted and therefore, the appellate tribunal was correct in setting aside the judgment passed by the tribunal. [Para 38][551F-H] Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic 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, SEBI v. Shriram Mutual Fund & Another (2006) 5 SCC 361 : [2006] 2 Suppl. SCR 833; Standard Chartered Bank v. 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. v. Royal Holdings Services Ltd. & Ors. (2006) 1 Bom CR 545; Zandu Pharmaceutical Works Ltd. v.

Devkumarvaidya & Ors. (2009) 89 CLA 65; B.S.E Brokers’ Forum, Bombay & Ors. v. Securities and Exchange Board of India & Ors., (2001) 3 SCC 482; Sahara India Real Estate Corporation Ltd. & Ors. v. SEBI & Anr., (2013) 1 SCC 1 : [2012] 12 SCR 1; Securities and Exchange Board of India v. Kishore R Ajmera, (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 Gupta v. Securities and Exchange Board of India, (2021) SCC OnLine SC 485 – referred to.