Recently, the Supreme Court of India vide its judgement in IFB Agro Industries Limited v. SICGIL India Limited, (Civil Appeal No. 2030 of 2019, decided on January 4, 2023) dealt with the question of (a) scope and ambit of Section 111A of the Companies Act, 1956 ("1956 Act”), as amended by Section 59 of the Companies Act, 2013 (“2013 Act”), to rectify the register of members and (b) appropriate forum for adjudication and determination of violations and consequent actions under regulations issued by Securities and Exchange Board of India ("SEBI”).

1. Brief Facts:
   SICGIL India Limited (“Respondent”), along with its then managing director, had been gradually acquiring shares of IFB Agro Industries Limited ("Appellant”) and their cumulative shareholding in the Appellant had crossed the limit of 5% (five percent) in January 2004, thereby triggering the disclosure requirement under regulation 7(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (“SAST Regulations”). Whilst the relevant disclosure was made in this regard, it was contended that the disclosure was not in the prescribed format.
   
   Later in May 2004, the Respondent had acquired additional shares of the Appellant, thus individually crossing the 5% (five percent) threshold for triggering disclosure requirement under regulation 13 of SEBI (Prohibition of Insider Trading) Regulations, 1992 (“PIT Regulations”). However, no disclosure was made in compliance with the aforementioned stipulation.
   
   It is in the above referred factual background, a petition was filed before Company Law Board (“CLB”) under section 111A of the Companies Act, 1956 (“1956 Act”) (akin to section 59 of the Act) for rectification of the Applicant’s register by deleting the name of the respondents as the owner of shares which are over and above the 5% (five percent) threshold (“Petition”).
   
   After the Respondent received notice of the Petition, it had belatedly issued an intimation as required under the PIT Regulations and also brought down its individual shareholding to below 5%. The aforesaid acquisition and subsequent reduction in shareholding as well as delay in making the relevant disclosure was intimated by the Respondent to the SEBI. Notably, SEBI did not take any regulatory action against the respondents to till the date of judgement.
   
   While the Petition was pending, the 2013 Act came into force and the matter was transferred from the CLB to National Company Law Tribunal (“NCLT”), which had 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?

2. Before NCLT and NCLAT:
   The NCLT ruled against the respondents and held them liable for contravention of the regulatory timelines and disclosure format prescribed under the SAST Regulations and the PIT Regulations. The NCLT found itself sufficiently empowered to pass an order under section 111A of the 1956 Act even in the event of the alleged act being in violation of SEBI regulations. It opined that since the power exercised by CLB and SEBI fall in two different and distinct jurisdictional field, both Tribunal as well as SEBI would not be precluded from exercising their own jurisdiction. Basis this, the NCLT allowed the Appellant to buy back the share acquired by respondents in excess of 5% (five percent). The matter was appealed before the National Company Law Appellate Tribunal (“NCLAT”), where the decision of NCLT was reversed by way of a non-reasoned order. As a result, the present appeal was filed before the Supreme Court.

3. Before Supreme Court:
   The Supreme Court addressed the issue pertaining to the (a) scope of section 111A of the 1956 Act to rectify the register of members; and (b) the appropriate forum for adjudication and determination of violations and consequent actions under SEBI regulations, as follows:
   
   3.1.     Scope of Section 111A:
   The Supreme Court observed that power under section 111A of the 1956 Act is a summary power applicable only in cases where the rectification is confined to facts that are evident and need no serious enquiry. The Supreme Court relied upon the decision given in Ammonia Supplies Corporation (P) Limited v. Modern Plastic Containers Private Limited, [(1998) 7 SCC 105] which interpreted the scope of section 155 of the 1956 Act, and noted that despite exclusiveness to decide all matters relating to the rectification the forum has to act within the said four corners and adjudication of such matters cannot be doubted to be summary in nature. If the matter in question is truly rectification, all matters raised in that connection should be decided by the court under section 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by a civil court.
   
   The Court further observed that section 59(3) of the Act gives an overarching right to hold and transfer securities with associated voting powers, and considering its preciousness, the Parliament granted limited power to NCLT under section 59 so as to not restrict the right of a security holder, to transfer such securities.
   
   3.2.     Power of NCLT to decide violations of SEBI regulations:
   On the question of the appropriate forum for deciding violations under SEBI regulations, the Supreme Court relied upon the decision of the Bombay High Court in Kesha Appliances (P) Ltd. v. Royal Holdings Services Ltd. [(2006) 1 Bom CR 545] and noted that under common law, a shareholder has a right to apply for rectification of the share register even though it is not his own share in respect of which he is seeking rectification but still the said right if it flows from the provisions of SAST Regulations then undoubtedly it would fall within the exclusive jurisdiction of SEBI and not within the jurisdiction of this court.
   
   Considering the wide and specific powers of SEBI to regulate the securities market and the limited scope of NCLT’s rectificatory jurisdiction, the Supreme Court noted that the ex-ante scrutiny of transactions allegedly in violation of SEBI regulations has to be processed through the specific regulations and remedies provided therein. The Court thus noted that such an important role of SEBI under a comprehensive framework cannot be circumvented by simply asking for rectification under section 111A of the 1956 Act.
   Basis this reasoning, the Supreme Court overturned the decision of NCLT and held that the jurisdiction of the CLB under Section 111A of the 1956 Act could not have been invoked for violation of SEBI regulations.

4. Argus Comments:
   The decision of Supreme Court provides welcome clarity in relation to interplay between the provisions of the 2013 Act and the SEBI regulations, by identifying the jurisdiction of the relevant authorities to entertain the issue of violation of SEBI regulations. However, whilst in the context of Section 111A of 1956 Act, summary nature of the tribunal cannot be faulted with, equating the NCLT’s power under Section 59 of the 2013 Act with that of CLB under Section 111A of 1956 Act is not free of criticism, without consideration of rule 70 of NCLT Rules, 2016 which inter alia empowers the NCLT to decide any question relating to the title of any person who is a party to the petition to have his name entered in, or omitted from, the register.
   As the power to determine any question relating to title is wider than the summary nature of power exercised by CLB under the 1956 Act, without declaring rule 70 as ultra vires the 2013 Act, painting both the provisions as same probably raises more questions than resolving issues.

Please find a copy of the judgement, here.

This update has been contributed by R. Sudhinder (Senior Partner) and Ekta Bhasin (Principal Associate)

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