The company law tribunal does not exercise a parallel jurisdiction with the Securities and Exchange Board of India for tackling breaches of regulations framed by the market regulator, the Supreme Court said.
The apex court held so in IFB Agro Industries Ltd.'s case against SICGIL India Ltd.
Back in 2004, SICGIL India, along with persons acting in concert, acquired a little less than 5% of IFB Agro from the open market. A day later, they acquired another 600 shares, exceeding the 5% threshold and triggering a disclosure requirement for the company under SEBI's takeover regulations. Four months later, SICGIL India on its own bought more shares of IFB Agro. Consequently, its individual shareholding exceeded 5%, which SICGIL India admittedly failed to disclose within the prescribed time period. It later intimated SEBI, which took no regulatory action.
IFB Agro approached the National Company Law Tribunal, alleging that SICGIL had failed to make the disclosure in the prescribed format. So, the NCLT should exercise its rectificatory powers under Section 111A of The Companies Act, 1956 (Section 59 of the 2013 Act) which essentially allows a company to file for a correction in its register of members.
The tribunal should direct deletion of the names of SICGIL and persons acting in concert as the owners of IFB Agro's shares above the 5% threshold, IFB Agro said. At the time, SICGIL, along with connected persons, collectively held around 8.22% shares in IFB Agro.
The tribunal opined that SEBI's regulatory jurisdiction would not bar it from exercising its rectificatory powers. It directed the deletion of SICGIL's shareholding in excess of 5% and directed IFB Agro to buy back those shares. This prompted SICGIL to approach the apex court.
IFB Agro's counsel, P Chidambram, argued that company law must be read in consonance with the SEBI Act and not in derogation of it. Shyam Divan, while arguing for SICGIL, stated that filing a petition under Section 111A is "an abuse of process" and that the tribunal didn't have the power to cancel the transfer or order the shares to be bought back.
The apex court agreed with Divan's arguments and held that the NCLT's powers under Section 59 are summary in nature and intended to carry out corrections in the registry of members. The corrections must pertain to and be limited to obvious facts that do not require further investigation.
It held that IFB Agro's petition to hold SICGIL's acquisition over 5% as null and void was misconceived, and that the NCLT should've directed the company to seek this declaration before the appropriate forum. “Transactions falling within the jurisdiction of regulatory bodies created under a statute must necessarily be subjected to their ex ante scrutiny, enquiry and adjudication”, the apex court held.
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