Ifb Agro Industries Ltd. v. Sicgil India Ltd. and

527 [2023] 1 S.C.R. 527 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 regi ster of members – Scope of Rectificatory jurisdiction of National Comp any Law tribunal-NCLT – Violation of – On facts, respon dent No.1 acquired shares of the appellant exceeding 5% of it s total shares from the open market and failed to make disclosure as per Reg .7(1) of SAST Regulations and Reg. 13 of PIT Regulations – Appellant filed petition before NCLT u/s 111A of the 1956 Act (now s. 59 of the 2013 Act) for rectification of members register by deleting the name of the respondents as the owners of shares whi ch are over 5% – Allowed by NCLT holding that the acquisition o f shares in excess of 5% was in violation of the SEBI (PIT) Regu lations and the SEBI (SAST) Regulations and directed the appellant to buy back its shares which were held by the respondent – However, the appellate court set aside this direction on the ground that the tribunal e xceeded its jurisdiction – On appeal, held: Appellant is no t justified in invoking the jurisdiction of the CLB (now NCLT) u/s . 111A for violation of SEBI regulations – Rectificatory jurisdictio n u/s. 59 is summary in nature and cannot be exercised where the re are contested facts and disputed questions – If a petit ion seeks an adjudication under the garb of rectification, then the N CLT would not have jurisdiction, and it would be duty-bound to re -direct the parties to approach the relevant forum – Further, th e SEBI has a comprehensive role in regulating the securities market – Regulator cannot be circumvented by asking for rectification – It is only for the regulator to determine a violation of the provisions of the SEBI Act and the Regulations – NCLT exceeded its jurisdicti on – Thus, the appellant was correct in setting aside the order of t he NCLT – Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 – reg. 7(1) – Sec urities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 – reg. 13 – Companies Act, 1956 – s. 111A. Dismissing the appeal, the Court 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 sub jected to their ex-ante scrutiny, enquiry and adjudication. Ther efore, the submission that the National Company Law tribunal under Section 59 exercises a parallel jurisdiction with Securities an d Exchange Board of India for addressing violations of the Regulations framed under the SEBI Act is rejected. The scope and ambit o f Section 155 of the 1956 Act, as it then existed, fell for considerati on 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 c onsider 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’ ca nnot be interpreted in a manner which would enlarge the scope of the provision. The decision in Ammonia was followed by this C ourt 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 rec tification of the register is well-recognized and consistently fo llowed. Sub-section (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 indi cative of the limited scope and extent of the power of rectificat ion 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 befor e the appropriate forum. The appellate tribunal is, thus, ju stified 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 hold ing an inquiry, give a reasonable opportunity to the person c oncerned and determine if there is any transgression of the rules prescribed. The Board has the power to impose penalties for violatio ns and also restitute the parties. The adjudicatory power also i ncludes the power to settle administrative and civil proceed ings under Section 15JB of the SEBI Act. [Para 31][549-B-C]

1.6 The regulatory jurisdiction of the Board also includ es ex-ante powers to predict a possible violation and take pr eventive measures. The exercise of ex-ante jurisdiction nece ssitates 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 reason able ground to believe that a transaction in the securities market is going to take place in a manner detrimental to the int erests of the stakeholders or that any intermediary has viola ted the provisions of the Act, it may investigate into the ma tter under Section 11(C) of the SEBI Act. In other words, bein g the real-time security market regulator, the Board is entitled to keep a watch, predict and even act before a violation occurs. I t 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 trad ing. Even if there is a suspicion about the transgression of the pr ohibition, 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 t he entire procedure to be followed in the inquiry process. For an ef fective exercise of its ex-ante powers, the Board has provided the policy on disclosures in Chapter IV of the said Regulation s. Under Regulation 13, any person holding more than 5% shares or voting rights in a company, shall disclose to the company wit hin four working days, the number of shares or the extent of voting rights held by such person. Regulation 13 places a continual obligat ion of disclosure. Regulation 14 provides that any person violating OTHERS the said Regulations shall be liable for action under Se ctions 11, 11B, 11D, 24 and Chapter VI-A of the SEBI Act. [Para 33][54 9-F-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 meth ods of investigation, the manner of appointment of the inv estigating 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 las tly, the consequential orders and restitutionary directions which the Board is entitled to pass. The SEBI has the power u nder Regulation 11 to pass necessary directions to remedy an act of insider trading in order to have a complete and comprehens ive control over the securities market. [Para 34][550-C-E]

1.9 Having considered the comprehensive role of the S EBI in regulating the securities market with respect to insider trading, the important role of the Regulator cannot be circumvente d by simply asking for rectification under Section 111A o f the 1956 Act. Such an approach is impermissible. The scrutin y and examination of a transaction allegedly in violation of th e 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 powe rs and jurisdictions of these regulatory bodies, it is the duty of such Courts to ensure that transactions falling within the pr ovince of the regulators are necessarily subjected to their s crutiny and regulation. This will ensure that the regulatory bo dy, charged with the duty to protect the consumers has real time control over the sector, thus, realizing the purpose of their consti tution. [Para 36][550-G-H]

1.11 The position with respect to the SEBI (SAST) Regulations is similar to that of the SEBI (PIT) Re gulations. Regulation 7 of Chapter III obligates the acquirer of more than 5% shares in a company to disclose the same to the c ompany 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 app oint an investigating officer (Regulation 38), the issuance of show-cau se notice to the acquirer (Regulation 39), the obligat ion of the investigating authority to submit a report at the e arliest (Regulation 41), the duty to supply the report to the acq uirer and give him an opportunity of hearing before passing penal orde rs (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 non-compliance 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 investig ating officer, procedural safeguards in favor of the acquirer, and fin ally, the restitutionary order/directions to be passed by the Bo ard. 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 SEB I and CLB/ tribunal. The transaction complained of must suffer scr utiny by the regulator, and it is only for the regulator to determine a violation of the provisions of the SEBI Act and the Regulat ions. [Para 37][551-A-E]

1.12 Having considered the matter from a different perspective, the appellant is not justified in invo king the jurisdiction of the CLB under Section 111A of the Act for violation of SEBI regulations. The tribunal committed an erro r 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 concurr ed with, the conclusion that the tribunal exceeded its juris diction is accepted and therefore, the appellate tribunal was correct in setting aside the judgment passed by the tribunal. [Para 38] [551-F-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. OTHERS 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. Case Law Reference [1998] 1 Suppl. SCR 413 relied on Para 1 [1977] 2 SCR 190 referred to Para 13 [2006] 2 Suppl. SCR 833 referred to Para 13 [2006] 2 Suppl. SCR 1 referred to Para 21 [2015] 11 SCR 323 referred to Para 21

(2006) 1 Bom CR 545 referred to Para 22

(2009) 89 CLA 65 referred to Para 23

(2001) 3 SCC 482 referred to Para 29 [2012] 12 SCR 1 referred to Para 29 [2016] 1 SCR 1118 referred to Para 29 [2010] 3 SCR 70 referred to Para 29 CIVIL APPELLATE JURISDICTION : Civil Appeal No.2030 of 2019. From the Judgment and Order dated 06.12.2018 of the National Company Law Appellate Tribunal at New Delhi in Company Ap peal

(AT) No.240 of 2017. P. Chidambaram, Sr. Adv., Soumya Ray Chowdhury, Mahesh Agarwal, Gaurav Gupta, Himanshu Satija, Nishant Rao, Rajesh Kumar, E. 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. The Judgment of the Court was delivered by

PAMIDIGHANTAM SRI NARASIMHA, J.

¶1The short question for our consideration in this appeal relates to the scope of the rectificatory jurisdiction of the Na tional Company Law Tribunal under Section 59 of the Companies Act, 2013 1. In this context, we are called upon to determine the appropriate forum for adjudication and determination of violations of the Sec urities and Exchange 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 the Securities and Exchange Board of India Act, 1992 4. We have answered both the questions. On the first issue, following the decision of this Court in Ammonia Supplies Corporation (P) Ltd. v. Modern Pla stic 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 India 6for addressing violations of the Regulations framed under the SEBI Act.

¶2This is an appeal against the judgment of the National Company Law Appellate Tribunal 7(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, 1956 8, (which is Section 59 of the 2013 Act), for rectification of Members Register. The Tribunal while allowing the petition, hereinafter referred to as the ‘2013 Act’. hereinafter referred to as the ‘SEBI (SAST) Regulations’ hereinafter referred to as the ‘SEBI (PIT) Regulations’ hereinafter referred to as ‘the SEBI Act’.

(1998) 7 SCC 105 hereinafter referred to as ‘the SEBI’ or ‘the Board’. Companies Appeal (AT) 240 of 2017 of the National C ompany Law Appellate Tribunal dated 06.12.2018 hereinafter referred to as the ‘1956 Act’. OTHERS 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:

¶3The 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.

¶4It 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 t otal paid-up share capital.

¶5On 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 cap ital 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 9 Regulation 7(1) – Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent or fourteen per cent or fifty four per cent or seventy four per cent shares or voting rights in a company, in any manner whatsoever, shal l disclose at every stage the aggregate of his shareholding or voting rights in t hat company to the company and to the stock exchanges where shares of the target comp any are listed. Regulation 2(b) ¯ acquirer means any person who, directly or indirect ly, acquires or agrees to acquire shares or voting rights in the target company, or a cquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. 5% or more of the total paid-up share capital of a comp any, then a disclosure has to be made to the acquiree company and t he 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.

¶6Four 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 capita l of the Appellant. This individual crossing of 5% by Respondent No. 1 triggered the SEBI (PIT) Regulations. Regulation 13 10 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 o ut 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:

¶7It is in the above referred factual background that on 19.07.2004, the Appellant filed a petition before the Company Law Board 11 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 t he Appellant’s paid-up share capital.

¶8Upon receiving notice of the aforesaid petition, Responde nt No. 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 10 Regulation 13 –

(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 2 work ing 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. 11 hereinafter referred to as ‘the CLB’.

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.

¶9During 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 th e statutory provisions of disclosure norms under SEBI Regulations i s valid? Judgment of the Tribunal:

¶10By 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 th e 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 i n the management of the Appellant would be done jointly b y 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.

¶11In so far as the exercise of power under Section 111A of the 1956 Act is concerned, the Tribunal held that in case of violati on of SEBI regulations, Section 111A empowers a company to appl y 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 p ower 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 SE BI 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 SEB I (SAST) Regulations. The final order passed by the Tribunal is as follows: “The present Company Petition is allowed. The Responde nts having furnished the declaration at a later point of time are hereby barred from exercising their ri ghts 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 t o hand over the share certificates and share transfer forms wit hin 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 whiche ver is higher. It is clear that the power exercised by the Company Law Board and the powers exercised by the SEBI fall in differ ent and distinct jurisdictional fields. Therefore, the present o rder shall not preclude the jurisdiction of SEBI as an adjudic ating authority for deciding on the violation of SEBI Regula tions as have been laid down in the present petition.” Judgment of the Appellate Tribunal:

¶12The Respondents herein carried the matter to the Appell ate 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:

¶13Mr. 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, 1992 12 , 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 & Another 14 .

¶14Mr. 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 intimat ion 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 m ake any amendment to the same; (iv) the SEBI (PIT) Regulati ons 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) t he 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.

¶15Having heard both sides, we formulate the following questions for our consideration. 12 hereinafter referred to as ‘the SEBI Act’. 13 (1977) 2 SCC 424 14 (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 of members? Which is the appropriate forum for adjudic ation and determination of violations and consequent actions under the SEB I

(SAST) Regulations 1997 and the SEBI (PIT) Regulations 1992? Re: Interpretation and scope of Section 111A of the 19 56 Act as replaced by Section 59 of the 2013 Act:

¶16The 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 t he company by the Respondent Nos.1 to 6 are illegal, null and void and of no effect;

(b) Necessary directions be given for rectifying th e records by deleting the names of the Respondents as owners of all shares of and in the company acquired by the Responden ts;

(c) Permanent injunction restraining the Respondents whether by themselves or their servants or agents or assign s or otherwise howsoever from exercising any rights or rec eiving any benefit in respect of the shares held by the Respo ndents in the company in any manner whatsoever;

(d) …….

(e) …….”

¶17The 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 recti ficatory jurisdiction of the Tribunal and, in particular, the specific wordings of the said provision.

¶18The 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 comparativ e 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.

¶19The 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 (supra) . The application for rectification in Ammonia’s case was filed under Section 155, and it was submitted that the sco pe for rectification under Section 155 is enlarged in comparison with the position as it were under Section 38 of the 1913 Act. Rejecting the argument , this Court in Ammonia held that the jurisdiction exercised by the court for rectification of the register of members is essenti ally limited. The comparative analysis in Ammonia assumes importance as a similar submission is made before us by Mr. Chidambaram that the scope and jurisdiction of the Tribunal under Section 59 of the 2013 Act is wide when compared with Section 111A of the 1956 Act as amended in 1996. The relevant portion of the judgment in Ammonia is as under: - “26. …. There could be no doubt any question raised within the peripheral field of rectification, it is the court under Section 155 alone which would have exclusive jurisdiction. However, the question raised does not rest here. In case any cla im is based on some seriously disputed civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member and if the court feels such claim does not constitute to be a rectification but instead seeking adjudication of basic pillar some such fact s falling outside the rectification, its discretion to send a party to seek his relief before the civil court first for the adjudication of such facts , it cannot be said such right of the court to have been taken away merely on account of the deletion o f the aforesaid proviso. Otherwise under the garb of rectification one may lay claim of many such contentious issues for adjudication not falling under it . Thus in other words, the court under it has discretion to find whether the dispute raised is really for rectification or is of such a nature that unless decided first it would not come within the purview of rectification . The word “rectification” itself connotes some error which has crept in requiring correction. Erro r would only mean everything as required under the law has been done yet by some mistake the name is either omitted or wrongly recorded in the Register of the company.

¶27In other words, in order to qualify for rectification, every procedure as prescribed under the Companies Act bef ore recording the name in the register of the company has to be stated to have been complied with by the applicant… . The Court has to examine on the facts of each case whether an application is for rectification orsomething else. S o field or peripheral jurisdiction of the court under it would be what comes under rectification, not projected claims under the garb of rectification. So far exercising of power for rectification within its field there could be no doubt the Court as referred under Section 155 read with Section 2 (11) and Section 10, it is the Company Court alone has exclusive jurisdiction…B ut this does not mean by interpreting such “court having exclusive jurisdiction to include within it what is not covered under it, merely because it is clocked under the nomenclature rectification does not mean the court cannot see the substance after removing the cloak.

¶28Question for scrutiny before us is the peripheral f ield within which the Court could exercise its jurisdict ion for rectification. As aforesaid, the very word “rectifi cation” connotes something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. Rectification in other words is the failure on the part of the company to comply with the directions under the Act. …

¶31Sub-section (1)(a) of Section 155 refers to a case where the name of any person is without sufficient cause entered or omitted in the Register of Members of a company. The word “sufficient cause” is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the court has to exercise i ts jurisdiction. It cannot be doubted that in spite of exclusiveness to decide all matters pertaining to the rectification i t has to act within the said four corners and adjudication o f such matters cannot be doubted to be summary in nature. So, whenever a question is raised the court has to adjudicate on the facts and circumstances of each case. If it tru ly is rectification, all matters raised in that connection s hould be decided by the court under Section 155 and if it fi nds adjudication of any matter not falling under it, it may direc t a party to get his right adjudicated by a civil court.….”

¶20It is evident from the above that while interpreting Section 155, this Court has held 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 Court also held that the words ‘sufficient cause’ cannot be interpreted in a manner which would enlarge the scope of the provision.

¶21The decision in Ammonia was followed by this Court even after the deletion of Section 155 and insertion of Section 111A. This Court, in Standard Chartered Bank v. Andhra Bank Financial Services 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 enlarges the power of the CLB, the power of rectification continues to remain summary in nature and if any seriously disputed questions ari se, the Company Court should relegate the parties to a forum which i s more appropriate for investigation and adjudication of such disputed questions.

¶22In Kesha Appliances (P) Ltd. & Ors. v. Royal Holdings Services Ltd.& Ors.18 , the High Court of Bombay has held that: “41. .....The contention of the learned counsel for the plaintiff that there was a pre-existing common law right under sect ion 9 of the CPC and that pre-existing common law right is n ot taken away by the provisions of Section 15Y and 20A also cannot be accepted. It is because the common law ri ght of rectification which is sought to be enforced and exercise d by the plaintiff in the present case arises out of the right conferred on the basis of Take Over Regulations and once the provisions of the Take Over Regulations are invoked then the e ntire jurisdiction by virtue of the provisions of Section 15Y and 20A is exclusively conferred on the SEBI authorities. Lea rned counsel’s argument that under Section 15Y the only jurisdiction conferred on an adjudicating officer is to penalise the party and not for rectification also cannot be accepted b ecause the provisions of Section 15Y are to be read togeth er with Section 20A of the SEBI Act which inter-alia confers a powe r on the board to pass any order which includes directio n as contemplated under Regulation 44 of the Takeover Regulations..... …

¶43I am of the opinion that on plain and simple reading o f section 15Y read with section 20A of the Act all th e cases

(2006) 6 SCC 94

(2016) 1 SCC 423 Section 111(7) - On any application under this section, the Tribunal - (a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register; (b) generally, may decide any question which it is necessary or expedient to decide in con nection with the application for rectification.

(2006) 1 Bom CR 545 arising out of the breach and Take Over Regulation must fa ll within the exclusive domain of SEBI and cannot be complained in the court of Law by virtue of express bar contained under section 15Y and section 20A of the SEBI Act. I am also of the further opinion that there is no doubt that there is a commo n law right in a shareholder to apply for rectificati on of the share register even though it is not his own share in resp ect of which he is seeking rectification but still the said right if it flows from the provisions of Take Over Regulations then undoubtedly it would fall within the exclusive Jurisdiction o f SEBI and not within the Jurisdiction of this court in vie w of the express bar contained under the aforesaid statue. I am of the further opinion that the enactment of the amendm ent of Take Over Regulation of Amending provisions of SEBI (Substantial Acquisition of Shares and Take Over) S econd Amendment (Regulation 2002) w.e.f. 9.9.2002 by prov iding for the remedy under sub clause (c) and (d) of the Regula tion 44 the board has been empowered to give effective relie f of Rectification of Share Register by declaring cancel lation of the Allotment and/or by directing the company not to give an effect to the transfer if they are found to be in contrary t o the Take Over Regulation.” 23 . Zandu Pharmaceutical Works Ltd. v. Devkumarvaidya & Ors. 19 , is another instance where it has been held that in a cas e of violation of the SEBI Regulations, the CLB cannot exercise rectificatory jurisdiction unless and until the SEBI, in the very first instance, decides if there has been a violation or not. The CLB held that: “11. Most of the allegations made by the petitioner are yet to be investigated and to be crystallised/confirmed as violatio ns of the law. The allegations of violation of Takeove r Code and Insider Trading is to be decided by the SEBI and similarly the allegations of investment beyond the limit under section 372A of the Act and acquisition of shares creating thereby a dominant undertaking under section 108A of the Act ar e to be investigated and crystallised/confirmed as viola tions by the Central Government. Unless it is confirmed as a violat ion of law, the CLB has no power to issue orders for rectific ation 19 (2009) 89 CLA 65 of register of members and further this Bench has no powe r to declare these allegations as violations of law.”

¶24The 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. Sub-section (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.

¶25For the reason stated above, we are of the opinion that 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, therefore, justified in allowing the appeal and setting aside the order of the Tribunal. Re: appropriate forum for enquiry and adjudication of violations of the SEBI Regulations:

¶26There is another perspective in which the legality and propriety of the company petition under Section 111A for declaring the acquisition of shares as null and void for violation of SEBI Regulations coul d be judged - Which is the appropriate forum for adjudication and determination of violations and consequent actions under the SEBI (SAST) Regulations and the SEBI (PIT) Regulations?

¶27Public administration is dynamic and ever-evolving. It is now established that governance of certain sectors through i ndependent regulatory bodies will be far more effective than being under the direct control and supervision of Ministries or Departments of the Government. Regulatory control by an independent body composed of domain experts enables a consistent, transparent, independent, prop ortionate, and accountable administration and development of the sector. All t his is achieved by way of legislative enactments which establish independent regulatory bodies with specified powers and functions. They exe rcise powers and functions, which have a combination of legislative, executive, and judicial features.

¶28Another feature of these regulators is that they are impressed with a statutory duty to safeguard the interest of the consumers and the real stakeholders of the sector. Telecom Regulatory Authority of India 20 , Insurance Regulatory and Development Authority 21 , Insolvency and Bankruptcy Board of India 22 , Central 23 and State 24 Electricity Regulatory Commissions and Airport Economic Regulatory Authority 25 , are some of the regulators established under their respective statutes. The SEBI 26 is one such regulator.

¶29SEBI was established in 1988 to protect the interest of investors in securities and to promote the developm ent of, and to regulate, the securities market. This Court had the occasion to consider the regulatory role of the SEBI in maintaining an orderly and stable securities’ market so as to protect the interests of invest ors 27 .

¶30The statutory provisions contained in Chapters-IV, VI-A, read with Section 30, delineate the legislative 28 , administrative 29 and adjudicatory 30 functions of the Board. In its normative or legislative functions , the SEBI can formulate regulations encompassing various aspects having a bearing on the securities market. It sh ould be noted that the SEBI Act, Rules, Regulations and Circulars made o r issued under the legislation, are constantly evolving with a concerte d aim to enforce order in the securities market and promote its hea lthy growth while protecting investor wealth. In so far as its administrative/executive power goes, it has the power to regulate the business of stock exchanges and securities market. The Board provides for the regist ration and 20 Section 3, The Telecom Regulatory Authority of Indi a Act, 1997. Section 3, The Insurance Regulatory and Development Authority of India Act, 1999. Section 188, The Insolvency and Bankruptcy Code, 20 16. Section 76, The Electricity Act, 2003. Section 82, The Electricity Act, 2003. Section 3, The Airports Economic Regulatory Authori ty of India Act, 2008. Section 3, Securities and Exchange Board of India Act, 1992. B.S.E Brokers’ Forum, Bombay & Ors. v. Securities and Exchange Board of India & Ors. , (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 of India v. Ajay Agarwal, (2010) 3 SCC 765 (Para 33-34); Prakash Gupta v. Securities and Exchange Board of India, (2021) SCC OnLine SC 485 (para 102). Section 30, Securities and Exchange Board of India Act, 1992. Chapter IV, Securities and Exchange Board of India Act, 1992. Chapter VI-A, Securities and Exchange Board of India Act, 1992. regulation of stock brokers, share transfer agents, depositories, venture capital funds, collective investment schemes etc. It also has the p ower to prohibit various transactions which interfere with the hea lth of the securities market.

¶31In 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.

32.The regulatory jurisdiction of the Board also includes ex-ante powers to predict a possible violation and take preventive measur es. 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 transact ion in the securities market is going to take place in a manner detrimental to the interests of the stakeholders or that any intermedia ry 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 real-time se curity 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, with whi ch we are concerned in this case, are to be understood.

¶33The 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 p ower 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. This includes – procedural safeguards to be afforded to the insider (Regulation 6), submission of the report by the investigating authori ty (Regulation 8), communication of findings to the insider (Regulation 9), and the final orders/directions to be passed by the Board (Re gulation 11). 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 Re gulations shall be liable for action under Sections 11, 11B, 11D, 24 and Chapter VI-A of the SEBI Act.

¶34The above-referred regulatory regime is all-encompassing. It prescribes the prohibition, which is normative. The Regulati on 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. It is also important to note that the SEBI has the power under Regulation 11 to pass ne cessary directions to remedy an act of insider trading in order to have a complete and comprehensive control over the securities market.

¶35Having considered the comprehensive role of the SEBI i n regulating the securities market with respect to insider trading , we are of the opinion that the important role of the Regula tor 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 regu lations and remedies provided therein.

¶36When Constitutional Courts are called upon to interp ret provisions affecting the exercise of powers and jurisdicti ons 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 c ontrol over the sector, thus, realizing the purpose of their constitution.

¶37The 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). It is significant to note that Regulati on 45 provides for penalties for non-compliance with the said Regulations. The liability will be in terms of the Regulations and the SEBI Act. Here again, 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. Thi s whole procedure cannot be short-circuited by making an application und er 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.

¶38Having considered the matter from a different perspe ctive, we are of the opinion that the Appellant is not justified in invoking the jurisdiction of the CLB under Section 111A of the Act for violation of SEBI regulations. We are also of the opinion that the Tribunal committed an error in entertaining and allowing the company petition filed unde r Section 111A of the 1956 Act. Though we are not in agreement with the reasoning adopted by the Appellate Tribunal in the impugned order, we are in agreement with its conclusion that the Tribunal exceeded its jurisdiction and therefore, the Appellate Tribunal was correct in setting aside the judgment dated 05.07.2017.

¶39For the reasons stated above, Civil Appeal No. 2030 of 2019 arising out of the judgment dated 06.12.2018 in Company Appeal (AT) No. 240 of 2017 of the National Company Law Appellate Tribunal, New Delhi stands dismissed. There shall be no order as to costs. Nidhi Jain Appeal dismissed. (Assisted by : Shashwat Jain, LCRA)