Case Law: Bombay Dyeing Mfg. Co. Ltd. v. Arun Kumar Bajoria 2001 107 CompCas 535 CLB

This petition[1] is filed under Section 111A[2] of the Companies Act, 1956[3]. In this case, the petitioner company has sought for rectification of the Register of members of Bombay Dyeing & Manufacturing Company Ltd by deleting the names pf respondents 1 to 6 in respect of the shares impugned in the petition on the ground that these respondents had failed to comply with Regulation 7 of SEBI (Substantial Acquisition of Shares & Takeover)  Regulations 1997[4](Take Over Code). This petition was originally filed before the Western Region Bench and was later on transferred to the Northern Region Bench with the consent of the parties.

Facts of the Case

The petitioner-company was informed by its Registrars Sharepro Services on 28-6-2000 that as per the download of the data received from National Securities Depository Limited (NSDL) the first respondent along with respondents two to six had acquired and were holding shares of the petitioner-company exceeding 5 per cent as on 20-6-2000.

As per the letter from Sharepro Services dated 6-6-2000, the collective percentage holding of these respondents as on 20-6-2000, was 5.3 per cent and as on 27-6-2000, it was 5.7 per cent. As per Regulation 7 of the Take Over Code, these respondents, having acquired the shares in concert, should have informed the company about their acquisition beyond 5 per cent within 4 days of such acquisition. However, they had not informed the company. Therefore, the same was reported to the SEBI by a letter dated 7-6-2000 seeking for investigation into the said acquisition. In a letter to the SEBI dated 4-8-2000, the first respondent had intimated that he along with the other respondents held as on 31-7-2000, 5244894 shares constituting 12.7 per cent shares in the company. Since these respondents had not disclosed their acquisition beyond 5 per cent shares in the company, in terms of Section 111A(3) of the Act, the Register of members should be rectified by deleting their names from the Register in respect of all the shares acquired by them.

When the petition was mentioned, the Bench passed an order on 19-9-2000 freezing the voting rights in respect of these shares.

Issue

The issue raised in this case was:-

• Whether the Register of members deserve to be rectified as the respondents acting in concert, have contravened the provisions of Regulation 7 by not disclosing their acquisition beyond 5% shares in the company?

Contention of the Parties

Contention of the respondents:-

When the petition was mentioned, the Bench passed an order on 19-9-2000 freezing the voting rights in respect of these shares. Thereafter, the first respondent filed his reply to the petition stating that by a letter dated 16-3-2000, sent under certificate of posting, the sixth respondent had informed the company that its shareholding along with its associates had exceeded 5 percent of the shares in the company. In addition the sixth respondent had informed the Calcutta Stock Exchange also about this acquisition beyond 5 per cent by a letter dated 29-3-2000. Therefore the respondents had complied with the requirement of Regulation 7 of the Take Over Code and as such this petition should be dismissed. After filing of the reply and rejoinder, the first respondent filed an application seeking for dismissal of the petition as time-barred and during the course of arguments, the petitioner also filed an application seeking for condonation of delay, if any.

Contention of the petitioner:-

The petitioner contended that as per Regulation 7 of the Take Over Code, any acquirer acquiring shares of more than 5 percent shares in a company has to disclose to the company the aggregate of his shareholding within 4 days from such acquisition. As per Definition 2(b)[5] of the Code, an acquirer means any person acting in concert with such an acquirer. In the present case, the first respondent acting in concert with the other respondents had acquired beyond 5 percent shares without informing the company. The company came to know from its Registrar on 28-6-2000 that the respondents had exceeded the limit of 5 percent on 20-6-2000 in which case they should have disclosed the same to the company by 24-6-2000. Since they have failed to do so, there is a violation of the provisions of Regulation 7 of the Take Over Code. Section 111A(3) entitles a company to move the CLB to seek rectification of the Register of Members in case of transfer of shares in violation of any Regulation made by the SEBI. In the present case, since the respondents had not disclosed their aggregate holding beyond 5 percent within 4 days, the company has filed this petition in terms of Section 111A(3).

He further contended that even though the respondents contend that the sixth respondent had informed the company by a letter dated 16-3-2000 allegedly sent under certificate of posting about their acquisition beyond 5 per cent, the said letter was never received by the company.

Further contention of the respondents:-

The learned counsel for the respondents submitted that in view of free transferability of shares of a public company, and in view of the fact the Regulation 7 does not prohibit acquisition of shares, non-disclosure cannot merit rectification of register of members. It is not that free transferability means an open ended right without any conditionalities. It has to be in conformity of relevant provisions of the statute.

Grounds Taken

1. Section 111A(3)[6] of the Companies Act, 1956:-

For this, we will take a look at Section 111A[7]:-

Rectification of register of transfer.

• In this section, unless the context otherwise requires,” company” means a company other than a company referred to in sub- section (14) of section 111 of this Act.

• Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable.
• The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of transmission was delivered to the company, as the case may, be, after such enquiry as it thinks fit, direct any company or depository to rectify register or records if the transfer of the shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992[8] (15 of 1992 ), or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985[9] (1 of 1986 ).

• The Company Law Board while acting under sub- section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry.

•  The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board.

• Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended.

• The provisions of sub- sections (5), (7), (9), (10) and (12) of section 111[10] shall, so far as may be, apply to the proceedings before the Company Law Board under this section as they apply to the proceedings under that section.

Decision

 The Court in the present case also found that the shares which were beyond 5% are dematerialized by the respondents and instant registration takes place immediately after transfer. The respondents have also furnished the details of their acquisition from December 1999 evidencing the acquisition piecemeal. Therefore, no order can be passed in regard to the shares below 5 percent. Further, in the present case, the provisions of Section 111 A(3) have been invoked for acquisition of shares beyond 5 percent without disclosure and therefore, only shares acquired beyond that percentage would come under our purview in the present proceedings. The petitioner has not alleged that in the acquisition of shares below 5 percent also, the respondents had violated the provisions of any statute. Therefore, there is no scope to consider the prayer of the petitioner to rectify the register of members with regard to the present holding of the respondents which is below 5 percent.

Accordingly, the Court disposed off this petition by declaring that the respondents, acting in concert, have contravened the provisions of Regulation 7 by not disclosing their acquisition beyond 5 percent shares in the company and that the register of members in respect of all shares acquired beyond 5 percent deserves to be rectified, but we are not doing so as the shares in excess of 5 percent have already been reportedly transferred as permitted by Section 111A(5)[11] during the pendency of the present proceedings.

Analysis

This was a petition filed by the renowned company to remove the names of respondents 1 to 6 and therefore, rectifying the Register of members of the company. The reason for removing the names was that the respondent had not disclosed their acquisition of shares in the company beyond 5% according to the Section 111A(3) of the Companies Act, 1956. Therefore, by not disclosing it, the respondents cum shareholders of the company failed to comply with the Regulation 7 of Take Over Code and therefore, the petitioner company sought for the rectification of the Register by deleting their names with respect of all the shares acquired by them. Many points were presented by the petitioner company to strengthen its points and they also referred many case laws to make its case strong before the Court.

In reply to the allegations imposed by the petitioner – company, the respondents submitted their reply as well and tried to give insight of their stands to the Court as well. Court understood and took into consideration the points referred by both the parties and also kept into consideration all the landmark cases and the provisions of the Companies Act, 1956. But, during the proceedings, Court also found that the respondents sold their shares which were beyond 5% ( in excess of 5%) during the pendency of the present proceedings.

As, the respondents have transferred substantial percentage of their shares during the pendency of proceedings and the petitioner has not alleged the respondents that there has been violation by the respondents in the acquisition of shares below 5% also, therefore,  there is no scope left before the Court to rectify the Register of Members as the base because of which the rectification was being asked, that only has removed. Therefore, the Court disposed off the petition and petitioner left with no opportunity to defy its grievances.

Therefore, in this case, the respondents really understood the base of the case and extract of it was found out by them and after finding it, they removed the extract only, so that their position should not change in the Register of members of the company. Therefore, this case is really a beautiful case showing a different dimension related to company law and also showing the brainstorming of the respondents.

Conclusion

This case really gave us an insight related to different aspects of Companies Act, 1956 and also made us realize that how the mistake committed can be corrected even when the case is pending in the Court. The way the case took a turn after the transfer of shares which were in excess of 5% by the respondents during the pendency of the proceedings made us understand that even minute details if taken care of can be corrected and your position can be saved. In this case, Court as well as respondents both showed the correct side. Whatever the respondents did, all were done under legal compliances only.

References:

[1] Bombay Dyeing & Mfg. Co. Ltd. V. Arun Kumar Bajoria, 2001 107 CompCas 535 CLB

[2] The Companies Act, 1956, s. 111A.

[3] The Companies Act, 1956 (Act No. 1 of 1956).

[4] SEBI Regulations, 1997.

[5] SEBI Regulations, 1997,  2(b).

[6] The Companies Act, 1956, s. 111A(3).

[7] The Companies Act, 1956, s. 111A.

[8] SEBI Act, 1992.

[9] Sick Industrial Companies (Special Provisions) Act, 1985.

[10] The Companies Act, 1956, s. 111.

[11] The Companies Act, 1956, s. 111A(5)