The Supreme Court has held that the National Company Law Tribunal (NCLT) under Section 59 of the Companies Act, 2013 cannot exercise a parallel jurisdiction with the Securities and Exchange Board of India (SEBI) for addressing the violations of the Regulations framed under the SEBI Act.

The main question for consideration before the Apex Court in this appeal was related to the scope of the rectificatory jurisdiction of the NCLT under Section 59 of the Companies Act.

The two-Judge Bench comprising Justice A.S. Bopanna and Justice Pamidighantam Sri Narasimha observed –

“… 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. 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 SEBI and CLB/Tribunal.”

The Bench further observed that it is only for the regulator to determine a violation of the provisions of the SEBI Act and the Regulations and that the appellant was not justified in invoking jurisdiction for the violation of SEBI regulations.

The Court also noted that, “… the Tribunal committed an error in entertaining and allowing the company petition filed under 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 ...”

In this matter, the appeal was filed against the judgment of the National Company Law Appellate (Appellate Tribunal) whereby it set aside the judgment of the NCLT, allowing the company petition filed under Section111A of the Companies Act, 1956 (which is Section 59 of the 2013 Act) for rectification of the Members Register.

Senior Advocate P. Chidambaram appeared on behalf of the appellant while Senior Advocate Shyam Divan appeared for the respondents.

Brief Facts of the Case –

The appellant was a listed company engaged in the manufacture and sale of rectified spirit, country liquor, marine products, carbon dioxide gas, etc. and the respondent was also a listed company engaged in the business of producing carbon dioxide gas and dry ice. It was alleged that the appellant had rejected the proposal of the respondent due to which the respondents started acquiring shares of the appellant from the open market to eliminate competition and strengthen its dominant position in the market.

The NCLT while allowing the petition, 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. Hence, the matter was before the Supreme Court.

Following were the two issues before the Apex Court in this case:

1. 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?

2. Which is the appropriate forum for adjudication and determination of violations and consequent actions under the SEBI (SAST) Regulations 1997 and the SEBI (PIT) Regulations 1992?

The Court while dealing with the abovementioned issues noted, “The 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. … 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 Court further said that the NCLT should have directed the appellant to seek a declaration before the appropriate forum and that the Appellate Tribunal is, therefore, justified in allowing the appeal and setting aside the order of the Tribunal.

The Court also asserted, “When Constitutional Courts are called upon to interpret provisions affecting the exercise of powers and jurisdictions 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 control over the sector, thus, realizing the purpose of their constitution.”

The Court also observed that the important role of the Regulator cannot be circumvented by simply asking for rectification under Section 111A of the 1956 Act and such an approach is impermissible.

Accordingly, the Apex Court dismissed the appeal.

Cause Title- IFB Agro Industries Limited v. SICGIL India Limited and Others

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Justice AS BopannaJustice PS NarasimhaNCLTSEBI Regulations

Swasti Chaturvedi