–Report by Prapti Prajeeta
In this case of IFB AGRO INDUSTRIES LIMITED vs SICGIL INDIA LIMITED, the court determined the forum appropriate for adjudication and determination of violations of SAST and SEBI Regulations. In this case, the contention that under Section 59 the National Company Law Tribunal exercises a parallel jurisdiction with the Securities and Exchange Board of India for addressing violations of the Regulations framed under the SEBI Act was rejected.
In this very case, an appeal was filed against the National Company Law Appellate Tribunal for a judgment passed.
FACTS:-
The Appellant is a company listed and engaged in manufacturing and selling rectified spirits, etc. And respondent No. 1 is a too-listed company engaged in producing the same type of products. Other respondents are the managing director, his wife and some close relatives of the respondents.
In August 2003, one respondent came up with a proposal for a business between the Appellant and Respondent No. 1. The Appellant rejected the proposal. After this rejection, the Respondents started acquiring shares of the Appellant from the open market to eliminate competition and strengthen its dominant position in the relevant market.
As of 2004, the Respondents held under 5% of the Appellant’s total paid-up share capital. At the same time, Respondent No. 1 acquired 600 equity shares of the Appellant, and as a result, the respondents aggregate shareholding crossed the paid-up share capital of the Appellant in total by 5%, it triggered the SEBI (SAST) Regulation 7(1)9
Four months later, Respondent No. 1 acquired additional shares of the Appellant; as a result, the total paid-up share capital of the Appellant exceede5% by shareholding. This triggered the SEBI (PIT) Regulations, and Respondent No. 1 failed to disclose within the prescribed time.
After this, the Appellant filed a petition before the Company Law Board under the 1956 Act for its register rectification by deleting the name of the Respondents as the owner of shares over and above the 5% threshold.
Upon receiving notice of the petition above, but then Respondent No. 1 sold a few shares of the Appellant and then brought down to 4.91%its shareholding. But the Appellant claims that Respondent No. 1 never reduced its shareholding. Then SEBI was also informed that the individual shareholding of Respondent No. 1 stands below 5%. And as a result, SEBI has not taken any regulatory action.
But then the matter stood transferred to the Tribunal. The tribunal held that it violated the SEBI (PIT) Regulations. Further, the Tribunal also held that there had been SEBI (SAST) Regulations violation as the Respondents did not disclose in the proper format. However, the Tribunal held that the CLB and SEBI exercised powers fall in different and distinct jurisdictional fields. The tribunal thus allowed the company petition.
The Respondents then went to Appellate Tribunal in an appeal where it allowed the appeal and set aside the order of the Tribunal. Being aggrieved by it the plaintiff brought this appeal.
APPELLANT’S CONTENTIONS:-
the Appellant contended that no time intimation was prescribed in format and given by the Respondents when SEBI (SAST) Regulations got triggered; Respondent Nos. 1 – 6 were “connected persons” and were “acting in concert.” He then emphasized that the Respondents had previously admitted to the non-disclosure. Thus the Appellant has the right under Section 111A of the Act to approach the tribunal for rectification of the register.
DEFENDANT’S CONTENTIONS:-
The Respondents contended that filing a petition under Section 111A is an abuse of process. No violation under the SEBI (SAST) Regulations has occurred as the Respondents did give timely intimation in the prescribed format. The SEBI (PIT) Regulations do not apply to the other Respondent as shareholding never crossed 5% in individual limit. And under section 111A (3), the Tribunal doesn’t have any power to annul the transfer or to direct the buy-back of the shares.
JUDGMENT:-
The court held that the SEBI (SAST) regulation is a comprehensive scheme, the complained transaction should suffer regulator scrutiny and only the regulator has to determine the provisions of the SEBI Act and the Regulations.
Further, the court held that the Appellant is not justified to invoke the CLB jurisdiction under Section 111A for violation of SEBI regulations. And the Tribunal was wrong in allowing and entertaining the company petition filed under Section 111A of the 1956 Act. However, the tribunal did exceed its jurisdiction, so the Appellate Tribunal’s decision in setting aside the judgment was correct. The court then dismissed the appeal with no order as to costs.