CAUSE TITLE:
IFB Agro Industries Ltd. vs SICGIL India
DATE OF ORDER:
4 January 2023
JUDGE(S):
Justices A S Bopanna and P S Narasimha
PARTIES:
Petitioner: IFB Agro Industries Ltd. Respondent: SICGIL India
SUBJECT
The Securities and Exchange Board of India cannot exercise a parallel jurisdiction with the National Company Law Tribunal under Section 59 of the Companies Act, 2013, to address violations of the Regulations created under the SEBI Act, according to the Supreme Court.
The court determined that the NCLT's rectification authority under Section 59 of the 2013 Companies Act is of a summary nature. The bench of Justices A S Bopanna and P S Narasimha noted that it is not designed to be used when there are disputed facts and questions.
IMPORTANT PROVISIONS
Companies Act, 2013; Section 59
Rectification jurisdiction of NCLT - Summary in nature and not meant to be used where there are disputed facts and questions - Transactions that are subject to the ex-ante scrutiny, investigation, and decision-making of regulatory bodies established by statutes must be so. - NCLT under Section 59 cannot exercise a parallel jurisdiction with SEBI for dealing with violations of SEBI Regulations. (Para 1, 18)
BRIEF FACTS
- The petitioner in this case, IFB Agro Industries Limited, was established on February 19, 1982, following the provisions of the Companies Act, of 1956. The Petitioner Company's registered office is located within the purview of this Hon'ble Bench at Plot No. IND-5, Sector I, East Calcutta Township, Kolkata-700107. The petitioner company's authorized capital is Rs. 12 crores. The Petitioner Company's issued subscribed and paid-up capital is Rs. 7,70,71,110, consisting of 77,07,111 fully paid-up equity shares of Rs. 10 each. The Petitioner Company's current line of business includes the production and distribution of rectified spirits, country liquor, IMFL, maritime products, and carbon dioxide gas.
- The shares of the petitioner company are traded on the stock exchanges in Mumbai, Kolkata, Delhi, and the United States. Respondent No. 1 is SICGIL India Ltd., a business that was established by the Companies Act of 1956 and whose registered address is Dhun Building, 84 (Old No. 827), Anna Salai, Chennai, 600002. The R-2 is the R-1's managing director and the main person in charge of the R-1 Company's management and affairs. According to Section 6 of the Companies Act of 1956, Respondent Nos. 3 through 6 are relatives of R-2.
- The R-4 to 6 are connected to the R-2 and 3, and the R-3 is the spouse of the R-2. A manufacturer, The R-1 Company produces dry ice and CO2 in its facilities.
- The Respondents, whether acting jointly or alone, have now attempted to acquire a total of 6,33,682 shares of the Petitioner Company, or about 8.22% of the Petitioner Company's paid-up capital as of July 9, 2004.
QUESTIONS RAISED
Is it legal for the Respondents to have purchased shares without adhering to the disclosure requirements outlined in the SEBI Regulations?
ARGUMENTS ADVANCED BY THE APPELLANT
- The senior counsel for the petitioner claimed that in the first week of August 2003, the managing director of the R-1 company—who was also the R-2—visited the petitioner company's office with a business proposal for marketing the C02 that the petitioner company was manufacturing and for joining the dry ice business operated by Nurpur Gases Pvt. Ltd., with which the petitioner company had a close business relationship. Following the discussion of the proposal, the Petitioner Company chose not to do business with the R-1 Company.
- The senior counsel for the petitioner argued that the Respondents have been methodically buying shares of the petitioner company on the open market since August 2003 to pressure the petitioner company into accepting the R-1 Company's business proposal for marketing C02 and forging a partnership in Nurpur Gases Pvt. Ltd.'s dry ice business. Additionally, it is claimed that the Respondents are all unwelcome individuals who own shares in the Petitioner Company and that their commercial interests directly conflict with those of the Petitioner Company.
- Further, it is argued that the Respondents' actions and conduct in attempting to purchase these shares without disclosing them as required by the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, violates the aforementioned Regulations (as amended) and denies them the right to exercise any rights about the shares they purchased.
- The senior counsel for the petitioner claimed that the Respondent's goal is to stifle competition in the C02 market and pressure the petitioner company and its founders into signing a marketing and distribution agreement to the disadvantage of the petitioner company and its shareholders.
ARGUMENTS ADVANCED BY THE RESPONDENT
- The Respondents argued in their written submissions that it is pertinent to note in this context that the phrase "persons acting in concert" that appears in Regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeover) Regulations, 1997, is not used in the Insider Trading Regulation. The question is whether there is any room for interpreting "person" under the Insider Trading Regulations as "persons acting in concert," given that the use of the terms "person" and "persons acting in concert" in the Insider Trading Regulations and the Takeover Regulations must be conscious and deliberate.
- The respondents contend that since the Insider Trading Regulations don't contain such a clause, no such mandatory disclosures under the insider trading regulations must be made for any collective holding. The disclosure required by Regulation 13 of the Insider Trading Regulations assumes that the term "person" refers to a single entity.
- The Respondents additionally argued that the Takeover Regulations refer to "persons acting in concert." The Respondents have disclosed their aggregate shareholding in the Petitioner Company by such Regulations, as required by the aforementioned Takeover Regulations. The Respondents have properly made the disclosures by the Regulations. The identical document has always been affixed to the Respondents' pleas.
- Furthermore, it is argued that the R-2 to 6 never held more shares than allowed by the insider trading regulations, hence they were not subject to any mandatory disclosure obligations. Shiv DayalSoin& Sons Pvt. Ltd. and Anand Nivas (Private) Ltd. v. Anandji Kalyanji Pedi were two judgments of the Hon'ble Supreme Court that the Ld. Counsel for the Respondents cited in support of their argument.
ANALYSIS BY THE COURT
- The Apex Court bench noted in the appeal that the rectification powers of a Board/Company Court under Section 38 of the Companies Act, 1913, Section 155 of the 1956 Act, Section 111A added by the 1996 Amendment to the 1956 Act, and ultimately Section 59 of the 2013 Act, remained unchanged.
- "It is a summary power to make adjustments or rectifications to the members' registry. The rectification must pertain to and be limited to facts that are obvious and do not require further investigation. A comparison table of legislative amendments is provided below "The bench stated.
- The court ruled that the company's petition under Section 111A of the 1956 Act seeking a declaration that the Respondent's acquisition of shares was null and void was misconceived. According to the Tribunal, the Appellant should have been directed to seek such a declaration before the relevant forum.
- While dismissing the appeal, the court made the following observation about SEBI's regulatory regime:
- "The SEBI (SAST) Regulations post is comparable to the SEBI (PIT) Regulations post. Regulation 7 of Chapter III requires the buyer of more than 5% of a firm's shares to notify the company and the stock market. This is the restriction, and failure to disclose is punishable.
- In Chapter V, the Board's investigation and enforcement procedures are covered. These procedures include the Board's authority to designate an investigating officer (Regulation 38), the sending of a show-cause notice to the acquirer (Regulation 39), the requirement for the investigating authority to submit a report as soon as possible (Regulation 41), the obligation to provide the report to the acquirer and provide him with a hearing opportunity before passing penal orders (Regulation 42), and finally, the Board's powers (Regulation 44).
- It is important to note that Regulation 45 stipulates penalties for failure to comply with the aforementioned Regulations. The SEBI Act and the Regulations will govern the responsibility. Again, the SEBI (SAST) Regulation is a thorough plan that covers inquiry, investigation, a report submitted by the investigating officer, procedural protections in favor of the acquirer, and finally, the restitution order/directions to be passed by the Board.
- By filing a Section 111A application under the 1956 Act and arguing that the SEBI and CLB/Tribunal have parallel jurisdiction, the entire process cannot be shortened. The regulator must investigate the transaction that has been reported, and only the regulator can assess if the SEBI Act and its regulations have been broken.
CONCLUSION
Given the above conclusion, the court determined. The Securities and Exchange Board of India cannot exercise a parallel jurisdiction with the National Company Law Tribunal under Section 59 of the Companies Act, 2013, to address violations of the Regulations created under the SEBI Act, according to the Supreme Court.
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