Section 59 Companies Act 2013 - NCLT Cannot Excercise Parallel Jurisdiction With SEBI For Addressing Violations Of SEBI Regulations: Supreme Court

The Supreme Court has held National Company Law Tribunal under Section 59 of Companies Act, 2013, cannot excercise a parallel jurisdiction with Securities and Exchange Board of India6 for addressing violations of the Regulations framed under the SEBI Act.

The court held that rectificatory jurisdiction of the NCLT under Section 59 of the Companies Act,2013, is summary in nature. It is not not intended to be exercised where there are contested facts and disputed questions, the bench of Justices A S Bopanna and P S Narasimha observed.

In this case, NCLT allowed a company petition filed by IFB Agro Industries Ltd. under Section 111A of the Companies Act, 1956 (presently Section 59 of the 2013 Act), for rectification of Members Register.The Tribunal directed the petitioner company to buy-back its shares which were held by SICGIL India Ltd. In appeal, the Appellate Tribunal set aside this direction on the ground that the NCLT exceeded its jurisdiction. 

In appeal, the Apex Court bench noted that rectificatory powers of a Board/Company Court under Section 38 of the Companies Act, 1913, then under Section 155 of the 1956 Act, followed by Section 111A introduced by the 1996 Amendment to the 1956 Act, and finally, Section 59 of the 2013 Act, have remained the same. 

"It is a summary power to carry out corrections or rectifications in the register of members. The rectification must relate to and be confined to the facts that are evident and need no serious enquiry. The following is a comparative table indicating the legislative changes.", the bench said.

The court said 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 Tribunal should have directed the Appellant to seek such a declaration before the appropriate forum, it said.

Referring to the regulatory regime of SEBI, the court while dismissing the appeal, observed:

"The position with respect to the SEBI (SAST) Regulations is similar to that of the SEBI (PIT) Regulations. Regulation 7 of Chapter III obligates the acquirer of more than 5% shares in a company to disclose the same to the company and the stock exchange. This is the prohibition, and non-disclosure is punitive. Chapter V deals with investigation and action by the Board, which includes the power of the Board to appoint an investigating officer (Regulation 38), the issuance of show-cause notice to the acquirer (Regulation 39), the obligation of the investigating authority to submit a report at the earliest (Regulation 41), the duty to supply the report to the acquirer and give him an opportunity of hearing before passing penal orders (Regulation 42) and lastly, the powers of the Board to take action/pass directions under Chapter VI-A and Section 24 of the SEBI Act (Regulation 44). It is significant to note that Regulation 45 provides for penalties for non-compliance with the said Regulations. The liability will be in terms of the Regulations and the SEBI Act. Here again, the SEBI (SAST) Regulation is a comprehensive scheme providing for inquiry, investigation, submission of report by the investigating officer, Page 30 of 31 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 transaction complained of must suffer scrutiny by the regulator, and it is only for the regulator to determine a violation of the provisions of the SEBI Act and the Regulations."

Case details

IFB Agro Industries Ltd. vs SICGIL India Ltd. | 2023 LiveLaw (SC) 8 | CA 2030 of 2019 | 4 January 2023 | Justices A S Bopanna and P S Narasimha

For Appellant(s) Mr. P. Chidambaram, Sr. Adv. Mr. Soumya Ray Chowdhury, Adv. Mr. Mahesh Agarwal, Adv. Mr. Gaurav Gupta, Adv. Mr. Himanshu Satija, Adv. Mr. Nishant Rao, Adv. Mr. Rajesh Kumar, Adv. Mr. E. C. Agrawala, AOR

For Respondent(s) Mr. Shyam Divan, Sr. Adv. Mr. Dhruv Dewan, Adv. Ms. Reena Choudhary, Adv. Ms. Yashna Mehta, Adv. Mr. Ravilochan Daliparthi, Adv. Mr. Prayuj Sharma, Adv. Mr. S. S. Shroff, AOR

Headnotes

Companies Act, 2013 ; Section 59 - Rectificatory jurisdiction of NCLT - Summary in nature and not intended to be exercised where there are contested facts and disputed questions - Transactions falling within the jurisdiction of Regulatory bodies created under a statute must necessarily be subjected to their exante scrutiny, enquiry and adjudication - NCLT under Section 59 cannot excercise a parallel jurisdiction with SEBI for addressing violations of SEBI Regulations. (Para 1, 18)

Regulatory Bodies - Governance of certain sectors through independent regulatory bodies will be far more effective than being under the direct control and supervision of Ministries or Departments of the Government. Regulatory control by an independent body composed of domain experts enables a consistent, transparent, independent, proportionate, and accountable administration and development of the sector. All this is achieved by way of legislative enactments which establish independent regulatory bodies with specified powers and functions. They exercise powers and functions, which have a combination of legislative, executive, and judicial features. (Para 27)

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