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SEBI vs National Company Law Tribunal (NCLT) – Supreme Court decides on interplay between securities law and company law

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The Supreme Court of India (SC) in a judgement issued yesterday answered the question on jurisdiction of SEBI vis-à-vis NCLT pertaining to SEBI (SAST) Regulations, 1997 and SEBI (PIT) Regulations, 1992.

Brief facts: The appellant is a listed company while the respondents are a listed company along with its managing director and his certain family members. In August 2003, the respondents began purchasing shares of the appellant in the open market. When the aggregate shareholding of the respondents crossed 5%, they were obligated to disclose the same to the stock exchanges. The appellant approached the Company Law Board (CLB) under Section 111A of the Companies Act, 1956 (Now NCLT under Section 59 of Companies Act, 2013) praying for rectification of its register by deleting the name of the Respondents as the owner of shares which are over and above the 5% threshold.

The NCLT held that the respondents were in violation of the PIT Regulations and SAST Regulations. The Tribunal opined that the regulatory jurisdiction of SEBI would not bar the Tribunal from exercising its power under Section 111A of the Companies Act, 1956.

In appeal, the SC opined that the powers under Section 111A of the Companies Act 1956 is a summary power to carry out corrections or rectifications in the register of members and that the rectification must relate to and be confined to the facts that are evident and need no serious enquiry. Further that if a petition seeks an adjudication under the garb of rectification, then the CLB would not have jurisdiction, and it would be duty-bound to re-direct the parties to approach the relevant forum.

The SC while dismissing the appeal also noted that one cannot invoke the jurisdiction of the CLB under Section 111A of the Act for violation of SEBI regulations. The transactions falling within the jurisdiction of Regulatory bodies [Telecom Regulatory Authority of India(TRAI), Insurance Regulatory and Development Authority of India (IRDAI), nsolvency And Bankruptcy Board Of India (IBBI), SEBI etc.], created under their respective statute must necessarily be subjected to their ex-ante scrutiny, enquiry and adjudication, and that there is no parallel jurisdiction that exists in CLB / NCLT for determination of violations under the SEBI Act.

This is an important judgement in the context of takeovers and disputes between promoters, as it is often seen as an attempt to seek jurisdiction of NCLT on the ground of securities law violations. This judgement would put rest to many such claims.

A copy of the judgement is enclosed hereinbelow.

Regstreet Law Advisors welcome any comments on the issue on info@regstreetlaw.com.

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