Sicgil India Ltd. & Ors vs Ifb Agro Industries Limited

[Arising out of Order dated 5th July, 2017 passed by the National Company Law Tribunal, Kolkata Bench, Kolkata in C.P. No.550/KB/2004]

IN THE MATTER OF:

SICGIL India Ltd. & Ors. ...Appellants

Vs.

IFB Agro Industries Limited ...Respondent

Present: For Appellants: - Mr. Amit Sibal, Senior Advocate with Mr. Dhruv Dewan, Mr. Arjun Sharma, Ms. Reena Choudhary, Ms. Yashna Mehta, Mr. Bodhisatta Biswas, Mr. Rahul Kumar and Mr. Vinay, Advocates.

For Respondent: - Mr. S.N. Mukherjee, Mr. Arun Kathpalia and Mr. Ratnanko Banerjee, Senior Advocates with Ms. Soumya Roy Chowdhury, Mr. Krishnendu Datta, Ms. Iram Hassan, Mr. Rook Ray, Mr. Gaurav Gupta, Ms. P. Johri, Mr. Debanjan Mandal and Mr. Kumarjit Banerjee, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

The 'IFB Agro Industries Limited' ('the Company' hereinafter

referred to as the "Petitioner") filed a petition under Section 111A of the

Companies Act, 1956 before the then Company Law Board, Eastern

Regional Bench, Kolkata, seeking relief against the alleged illegal

acquisition of the shares of the Company by the Appellants (hereinafter

Company Appeal (AT) No. 240 of 2017 2

referred to as the "Respondents"), in violation of the Regulation 13 of the

'Securities and Exchange Board of India (Prohibition of Insider Trading)

Regulation, 1992'.

The National Company Law Tribunal (hereinafter referred to as

"Tribunal"), on its transfer, after hearing the parties, by impugned

judgment dated 5th July, 2017, held the acquisition of shares by the

Respondents as being in violation of Regulation 13 of the 'Securities and

Exchange Board of India (Prohibition of Insider Trading) Regulation,

1992' and passed the following orders:

"ORDER

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 buyback 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

Company Appeal (AT) No. 240 of 2017 3

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.

No order as to costs.

Company Petition No.550 of 2004 is hereby

disposed off."

2. The question arises for consideration in this appeal is whether the

Tribunal in exercise of powers conferred under sub-section (3) of Section

111A of the Companies Act, 1956 (now sub-section (3) of Section 59 of

the Companies Act, 2013) has jurisdiction to direct the Respondents

(Appellants) to sell its shares to the company and the Company to buy

back the shares of the Respondents (Appellants). Company Appeal (AT) No. 240 of 2017 4

3. The brief facts of the case are as follows:

On 22nd January, 2004, the Company (Petitioner) received a letter

from the Respondent (1st Appellant) under Regulation 7(1) of the

'Securities and Exchange Board of India (Substantial Acquisition of

Shares and Takeovers) Regulations, 1997' notifying that it had acquired

600 shares taking the total shareholding of the Respondents beyond 5%

of equity share capital of the Company and as a result the Respondents

became entitled to a further 0.008% of the voting rights in the Company

and the combined shareholding strength and/or voting rights of the

Respondent (1st Appellant), as at the date of issuance of the said letter

stood at 5.003%. Following the receipt of the said letter of 16th January,

2004, the Company enquired and discovered that the shareholding

strength and/or voting rights of the Respondents (Appellants) in the

Company as on 16th January, 2004 was 4.988%. The Company alleged

that the Respondents (Appellants) were acting in concert and/or as a

combined entity. The Company also came to learn that the shareholding

of the 1st Respondent (1st Appellant) and/or the Respondents (Appellants)

in the Company has been gradually increasing since 20th January, 2004.

It was only on or about 4th June, 2004 that the Petitioner Company came

to learn that the 1st Respondent (1st Appellant) itself had purported to

increase its own shareholding and/or voting strength in the Company

from 3.131% of the paid-up capital as at 16th January, 2004 to over 5%

of the paid up capital of the Company. The Petitioner (Company)

submitted that the no mandatory disclosure in compliance with the Company Appeal (AT) No. 240 of 2017 5

provisions of the 'Securities and Exchange Board of India (Prohibition of

Insider Trading) Regulations, 1992', as amended by the Amendment

Regulations 2002 for the said increase, had been made by the 1st

Respondent (1st Appellant) who was obviously functioning as a combined

unit in the matter of acquiring shares of the Company.

4. It was pleaded that on 21st May 2004, the list of

Beneficiaries/Beneficial owners (hereinafter referred to as "BENPOS")

reported by depositories to the Company indicated that the Respondents

(Appellants) had acquired further 2% equity shares of the Company

which was in violation of Regulation 13(1) & 13(3) and under Chapter IV

of the 'Prohibition of Insider Trading Regulations' of 'Securities and

Exchange Board of India (Prohibition of Insider Trading) Regulations,

1992'.

5. It was alleged that the Respondents ('Appellants') were required to

make the continual disclosure under 'Chapter IV of the Prohibition of

Insider Trading Regulations' which the Respondents have failed,

neglected and omitted to do and no intimation was given to the Company

within four working days.

6. The Petitioner (Company) also alleged that there is a continual

violation of Regulation 13(1), (3) & (6) of the 'Securities and Exchange

Board of India (Prohibition of Insider Trading) Regulations, 1992' as well

as Regulation 7 of the 'Securities and Exchange Board of India

Company Appeal (AT) No. 240 of 2017 6

(Substantial Acquisition of Shares & Takeover) Regulations, 1997and

2011'.

7. The stand of the Respondents ('Appellants') is that the expression

'persons acting in concert' used in Regulation 7 of the 'Securities and

Exchange Board of India (Substantial Acquisition of Shares & Takeover)

Regulations, 1997' finds no mention in the 'Securities and Exchange

Board of India (Prohibition of Insider Trading) Regulation, 1992'.

Different expressions of persons have been mentioned therein. It was

also submitted that the Respondents ('Appellants') have given the

requisite information either within time or a little bit beyond the time.

8. Learned counsel appearing on behalf of the Appellants

('Respondents' before the Tribunal) submitted that the 1st Appellant

purchased fresh shares of the Company from the open market. When the

combined shareholding of the Appellants in the Company exceeded 5%

of the issued capital on 19th January, 2004, the same was disclosed by

the 1st Appellant in terms of Regulation 7 of the 'Securities and Exchange

Board of India (Substantial Acquisition of Shares and Takeovers)

Regulations, 1997' on the next day i.e. 20th January, 2004 to the

Company as well as to the stock exchange.

9. In so far as the disclosure as required to be made under Regulation

13 of the 'Securities and Exchange Board of India (Prohibition of Insider

Trading) Regulation, 1992' is concerned, it was submitted that the 1st

Appellant inadvertently failed to make such disclosure within time with

Company Appeal (AT) No. 240 of 2017 7

regard to the acquisition of shares on 27th May, 2004. However, when it

came to their notice, it was intimated on 17th August, 2004.

10. Therefore, according to the Appellants (Respondents), it is not a

case of non-disclosure to the 'Securities and Exchange Board of India'

under Regulation 13 of the 'Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulation, 1992', but a disclosure

beyond the date due to mistake.

11. According to learned counsel for the Petitioner Company, the

statutory period for intimating the 'Securities and Exchange Board of

India' under Regulation 13(1) is four working day which admittedly the

Appellants failed to intimate. Therefore, according to learned counsel for

the Company, the Tribunal rightly cancelled the transfers of shares and

directed to transfer in favour of the Company.

12. The Tribunal referred to Section 111A of the Companies Act, 1956

and held that sub-section (3) of Section 111A empowers the Tribunal to

direct the parties to undone the mischief. The Tribunal held that the

acquisition of shares in excess of 5% of the shareholding was in violation

of Regulation 13 of the 'Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulation, 1992'

13. The Tribunal having not held that the transfer was in violation of

Regulation 7 of the 'Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997' and as

admittedly the intimation to the stock exchange was given by the 1st

Company Appeal (AT) No. 240 of 2017 8

Appellant (Respondent) on the next working day i.e. on 20th January,

2004, we are not deliberating on such issue as there is no violation of

Regulation 7(1) 'Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997'.

14. Regulation 13 of the 'Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulation, 1992' relates to 'disclosure of

interest or holding by directors and officers and substantial shareholders

in listed companies'. Clause (3) of Regulation 13 relates to 'continual

disclosure', relevant portion of which reads as follows:

"13. Disclosure of interest or holding by

directors and officers and substantial

shareholders in listed companies - Initial

Disclosure.

(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 4 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.

Company Appeal (AT) No. 240 of 2017 9

(2) Any person who is a director or

officer of a listed company shall disclose

to the company in Form B the number of

shares or voting rights held and positions

taken in derivatives by such person and

his dependents (as defined by the

company), within four working days of

becoming a director or officer of the

company.

Continual disclosure

(3) Any person who holds more than 5%

shares for voting rights in any listed

company shall disclose to the company in

Form C the number of shares or voting

rights held and change in shareholding or

voting rights, even if such change results

in shareholding falling below 5%, if there

has been change in such holdings from the

last disclosure made under sub regulation

(1) or under this sub-regulation; and such

change exceeds 2% of total shareholding

or voting rights in the company

xxx xxx xxx

Company Appeal (AT) No. 240 of 2017 10

(5) The disclosure mentioned in sub-

regulations (3) and (4) shall be made within

four working days of:

(a) the receipts of intimation of

allotment of shares, or

(b) the acquisition or sale of shares or

voting rights, as the case may be."

15. In the present case, it is not in dispute that the shares were

purchased by the 1st Appellant (Respondent) on 27th May, 2004. However,

the 'Securities and Exchange Board of India' was intimated much beyond

four working days on 17th August, 2004 i.e. after filing of the Company

Petition. Thus, the intimation to the 'Securities and Exchange Board of

India' is in breach of the provisions of Regulation 13(3) aforesaid.

16. Section 111A of the Companies Act, 1956 relates to 'rectification of

register on transfer' and reads as follows:

"111A. Rectification of Register on

transfer:

(1) In this section, unless the context otherwise

requires, "company" means a company other

Company Appeal (AT) No. 240 of 2017 11

than a company referred to in sub-section (14)

of section 111 of this Act.

(2) Subject to the provisions of this section, the

shares or debentures and any interest therein

of a company shall be freely transferable:

Provided that if a company without sufficient

cause refuses to register transfer of shares

within two months from the date on which the

instrument of transfer or the intimation of

transfer, as the case may be, is delivered to the

company, the transferee may appeal to the

Company Law Board and it shall direct such

company to register the transfer of shares.

(3) The Company Law Board may, on an

application made by a depository, company,

participant or investor or the Securities and

Exchange Board of India, if the transfer of

shares or debentures is in contravention of any

of the provisions of the Securities and Exchange

Board of India Act, 1992 (15 of 1992), or

regulations made thereunder or the Sick

Industrial Companies (Special Provisions) Act,

1985 (1 of 1986), or any other law for the time

Company Appeal (AT) No. 240 of 2017 12

being in force, within two months from the date

of transfer of any shares or debentures held by

a depository or from the date on which the

instrument of transfer or the intimation of

transmission was delivered to the company, as

the case may be, after such inquiry as it thinks

fit, direct any depository or company to rectify

its register or records.

(4) The Company Law Board 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 Company Law

Board.

(6) Notwithstanding anything contained in this

section, any further transfer, during the Company Appeal (AT) No. 240 of 2017 13

pendency of the application with the Company

Law Board, of shares or debentures shall

entitle the transferee to voting rights unless the

voting rights in respect of such transferee have

also been suspended.

(7) The provisions of sub-sections (5), (7), (9),

(10) and (12) of section 111 shall, so far it may

be, apply to the proceedings before the

Company Law Board under this section as they

apply to the proceedings under that section."

17. From sub-section (3) of Section 111A, it is clear that if the transfer

of 'shares' or 'debentures' are in contravention of any of the provisions of

the 'Securities and Exchange Board of India Act, 1992', the Tribunal,

after inquiry, may direct any depository or company to rectify its register

or records. It does not empower the Tribunal to pass a penal order

annulling the transfer or to direct the shareholders to transfer the shares

to the Company.

18. Admittedly, the application under Section 111A of the Companies

Act, 1956, was filed by the Petitioner ('Respondent Company' herein)

before the erstwhile Company Law Board, Eastern Regional Bench,

Kolkata, and stood transferred to the Tribunal in view of Section 434(1)(a)

of the Companies Act, 2013, which reads as follows:

Company Appeal (AT) No. 240 of 2017 14

"434. Transfer of certain pending

proceedings. -- (1) On such date as may be

notified by the Central Government in this

behalf, --

(a) all matters, proceedings or cases

pending before the Board of Company Law

Administration (herein in this section

referred to as the Company Law Board)

constituted under sub-section (1) of section

10E of the Companies Act, 1956 (1 of

1956), immediately before such date shall

stand transferred to the Tribunal and the

Tribunal shall dispose of such matters,

proceedings or cases in accordance with

the provisions of this Act."

19. Clause (a) of Section 434 (1) makes it clear that on transfer the

Tribunal is required to dispose of such matters, proceedings or cases in

accordance with the provisions of the Companies Act, 2013 and not in

accordance with the provisions of the earlier Act (Companies Act, 1956).

20. After transfer the application under Section 111A of the Companies

Act, 1956 is to be dealt with in terms of Section 59 of the Companies Act,

2013, which reads as follows:

Company Appeal (AT) No. 240 of 2017 15

"59. Rectification of register of

members.─ (1) If the name of any person is,

without sufficient cause, entered in the register

of members of a company, or after having been

entered in the register, is, without sufficient

cause, omitted therefrom, or if a default is made,

or unnecessary delay takes place in entering in

the register, the fact of any person having

become or ceased to be a member, the person

aggrieved, or any member of the company, or the

company may appeal in such form as may be

prescribed, to the Tribunal, or to a competent

court outside India, specified by the Central

Government by notification, in respect of foreign

members or debenture holders residing outside

India, for rectification of the register.

(2) The Tribunal may, after hearing the parties to

the appeal under sub-section (1) by order, either

dismiss the appeal or direct that the transfer or

transmission shall be registered by the company

within a period of ten days of the receipt of the

order or direct rectification of the records of the

depository or the register and in the latter case,

Company Appeal (AT) No. 240 of 2017 16

direct the company to pay damages, if any,

sustained by the party aggrieved.

(3) The provisions of this section shall not restrict

the right of a holder of securities, to transfer such

securities and any person acquiring such

securities shall be entitled to voting rights unless

the voting rights have been suspended by an

order of the Tribunal.

(4) Where the transfer of securities is in

contravention of any of the provisions of the

Securities Contracts (Regulation) Act, 1956 (42 of

1956), the Securities and Exchange Board of

India Act, 1992 (15 of 1992) or this Act or any

other law for the time being in force, the Tribunal

may, on an application made by the depository,

company, depository participant, the holder of

the securities or the Securities and Exchange

Board, direct any company or a depository to set

right the contravention and rectify its register or

records concerned.

(5) If any default is made in complying with the

order of the Tribunal under this section, the

company shall be punishable with fine which

shall not be less than one lakh rupees but which Company Appeal (AT) No. 240 of 2017 17

may extend to five lakh rupees and every officer

of the company who is in default shall be

punishable with imprisonment for a term which

may extend to one year or with fine which shall

not be less than one lakh rupees but which may

extend to three lakh rupees, or with both."

21. From sub-section (4) of Section 59, it is clear that where the

transfer of securities is in contravention of any of the provisions of the

'Securities Contracts (Regulation) Act, 1956', the 'Securities and Exchange

Board of India Act, 1992' or the 'Companies Act, 2013' or any other law

for the time being in force, the Tribunal can direct the company or a

depository to set right the contravention and rectify its register or records

concerned.

22. The Tribunal has failed to notice that the petition having filed

under Section 111A of the Companies Act, 1956, on transfer was

required to deal with the Petitioner in terms of sub-section (4) of Section

59 of the Companies Act, 2013.

23. For the said reason, we hold that the Tribunal exceeded its

jurisdiction by annulling the shares and by directing the Respondents

(Appellants) to transfer the shares to the Company. If there is

contravention of any of the provisions of the Securities Contracts

(Regulation) Act, 1956, the 'Securities and Exchange Board of India Act,

1992' or the Companies Act, 2013 or any other law for the time being in Company Appeal (AT) No. 240 of 2017 18

force, the Tribunal could have directed the company or a depository to

set right the contravention and rectify its register or records concerned.

24. In view of the aforesaid findings, the impugned judgment dated

5th July, 2017 cannot be upheld and the same is accordingly set aside.

The appeal is allowed. However, in the facts and circumstances of the

case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 6th December, 2018 AR

Company Appeal (AT) No. 240 of 2017