NCLT can’t exercise parallel jurisdiction with SEBI u/s 59 of Companies Act for addressing violations of SEBI norms

Case Details: IFB Agro Industries Ltd. v. SICGIL India Ltd. - [2023] 146 taxmann.com 82 (SC)

Judiciary and Counsel Details

• • A.S. Bopanna & Pamidighantam Sri Narasimha, JJ.

Facts of the Case

In the instant case, the question was placed before the Apex Court as to whether the Adjudicating Authority (NCLT) can exercise parallel jurisdiction with SEBI u/s 59 of the Companies Act, 2013 for addressing violations of SEBI norms.

In the instant case, as of 18.01.2004, respondents collectively held just under 5% of the Appellant’s total paid-up share capital.

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) of the SEBI (SAST) Regulation.

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.

The Appellant contended that the disclosure under Regulation 7(1) was not in the prescribed format.

The Appellant filed a petition before the Company Law Board 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.

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?

The National Company Law Tribunal (NCLT) allowed a company’s petition filed by the appellant u/s 111A of the Companies Act, 1956 (i.e. Section 59 of the Companies Act, 2013) for rectification of the register of members.

While 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 NCLT further directed the appellant company to buy-back its shares which were held by the respondent company.

Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the Adjudicating Authority (NCLT). The NCLAT held that the individual crossing of 5% by Respondent triggered the SEBI (PIT) Regulations. The NCLAT observed that Regulation 13 of the said regulations provides that if any person acquires more than 5% shares of a company, then it shall make a disclosure to the acquiree company. Therefore, the NCLAT set aside the order passed by the NCLT on the ground that the Adjudicating Authority exceeded its jurisdiction.

Thereafter, an appeal was made to the Apex Court.

Supreme Court Held

The Apex Court observed that the rectificatory powers of a Board/Company Court u/s 38 of the Companies Act, 1913, then u/s 155 of the Companies Act, 1956, followed by section 111A introduced by the 1996 Amendment to the 1956 Act, and finally section 59 of the Companies Act, 2013 demonstrate that its essential ingredients have remained the same.

The Apex Court, further observed that the power of NCLT u/s 59 of the Companies Act, 2013 is narrow and can only consider the questions of rectification. If a petition seeks an adjudication under the garb of rectification, then NCLT would not have jurisdiction, and it would be duty-bound to re-direct the parties to approach the relevant forum/Regulator (e.g. SEBI).

The Apex Court held that the rectificatory jurisdiction of the Adjudicating Authority (NCLT) u/s 59 of the Companies Act, 2013 is summary in nature. It is not intended to be exercised where there are contested facts and disputed questions.

Further, the Apex Court held that the company’s petition u/s 111A of the 1956 Act or section 59 of the Companies Act, 2013, for a declaration that the acquisition of shares by the respondents as null and void was misconceived. The Tribunal should have directed the appellant to seek such a declaration before the appropriate forum (i.e. SEBI). Accordingly, the NCLAT was justified in setting aside the order of the Adjudicating Authority (NCLT).

In view of the above, the Adjudicating Authority (NCLT) cannot exercise parallel jurisdiction with SEBI u/s 59 of the Companies Act, 2013 for addressing violations of SEBI norms.