2017 (5) TMI 1729 - AT - Companies Law

Order directing SEBI Act compliance set aside, Companies Act sections exempted. Appeal allowed, with disposal directions.

BSE Ltd. Versus M/s Ricoh Company Ltd. & Ors.

The Tribunal set aside the order directing compliance with SEBI Act regulations and guidelines, except for specific sections of the Companies Act, 1956. ... Cancellation of shares of 1st Respondent - Respondents not only wants to get rid of Section 100 to 104 of the Companies Act, 1956 but also in the other provisions made under the SEBI Act - HELD THAT:- The present case is not that of statute incorporated into another statute, while enacting or amending or by repeal. It is true that SEBI Act is a special law, complete code in itself containing elaborate provisions to protect interest of investors. The Companies Act, 1956 or Companies Act, 2013 is not in conflict with the SEBI Act. Therefore, the SEBI Act is required to be followed by all parties, including 1st and 2nd Respondents. Regulation 37 of LODR merely reiterates and adopts Section 101 of the Companies Act, 1956 and Section 66 of Companies Act, 2013 apart from other provisions such as Section 391 to 394 of the Companies Act, 1956 and Section 230 to 234 of the Companies Act, 2013. Admittedly, the Company Petition is pending before the Tribunal and no deliberation or finding has been given about 'oppression and mismanagement' by one or other respondents to the Company Petition. After final hearing the Company Petition may be allowed or may be dismissed or disposed off with certain observations. In such a situation whether the Tribunal was competent to pass the orders dated 24th August 2016 or not is to be doubted. The order passed on 24th August, 2016 in true sense may not be called to be an interim order for regulating the conduct of the affairs of the company. The said order has nothing to do with the affairs of the company - However, as the order dated 24th August 2016 is not under challenge, expressing some doubt about the order, we do not intend to interfere with the said order as the order dated 24th August 2016 has reached finality. Thus, No case was made out by Respondents asking for interim order under sub section (4) of Section 242 of the Companies Act, 2013. Such interim order can be passed only for regulating the conduct of the affairs of the company if so necessary. Whether compliance of Section 100 to 104 of Companies Act, 1956 is to be followed? - HELD THAT:- The Central Government issued notification w.e.f. 1st June 2016 transferring all cases from the Company Law Board to Tribunal. By another notification dated 7th December 2016, the cases pending before the Hon'ble High Courts have been transferred to the Tribunal, except the cases where certain order (s) have been passed by the Hon'ble High Courts. Since 7th December, 2016, the Hon'ble High Courts have no jurisdiction to entertain any petition under Section 100 of the Companies Act, 1956. Therefore now onward, the question of confirmation by the Hon/ble High Court of a special resolution for reduction of the share capital, as stipulated under Section 100 of the Companies Act, 1956 does not arise. The provision of Section 100 has become redundant. The question of order of High Court confirming the reduction of share capital of the company as mentioned in clause (a) or delivering to him a certified copy of the order or a minute approved by the High Court, as mentioned in clause (b) of sub-Section (1) of Section 103 of the Companies Act, 1956 does not arise - As SEBI Act is a special law, a complete code which is to be read in harmony with the provisions of Companies Act is required to be complied with by companies, including the Respondents. Similarly, the Regulations and circulars issued by SEBI are also required to be followed as they not in conflict with the Companies Act, 1956 or Companies Act, 2013 but are supplementary. Therefore, the Respondents are bound to follow all the Rules, Regulations and Circulars, except to the extent of Section 100, 101 and 102 of Companies Act, 1956 which are not feasible to comply, the power of the High Court having been divested. The Respondents are directed to follow the mandatory provisions of SEBI Act, Regulations and directions, except Section 100 to 102 of Companies Act, 1956 for giving effect to Tribunal's order dated 24th August, 2016 - appeal allowed. Issues Involved:1. Compliance with Sections 100 to 104 of the Companies Act, 1956.2. Jurisdiction of the Tribunal concerning SEBI guidelines and circulars.3. Applicability of Section 242 of the Companies Act, 2013.4. The effect of the repeal of the Companies Act, 1956 by the Companies Act, 2013.5. The power of the Tribunal to pass interim orders.Detailed Analysis:1. Compliance with Sections 100 to 104 of the Companies Act, 1956:The Tribunal's order dated 24th August 2016 directed the cancellation and re-issuance of shares without following the procedure laid under Sections 100 to 104 of the Companies Act, 1956. The Tribunal clarified that the procedure under Sections 100-104 need not be followed when an order is passed under Section 242(2)(c) of the Companies Act, 2013. The Appellant argued that SEBI Act, being a special law, mandates compliance with these sections. However, the Tribunal noted that since the jurisdiction to confirm the reduction of share capital has been transferred to the Tribunal from the High Courts, the provisions of Sections 100-104 have become redundant.2. Jurisdiction of the Tribunal concerning SEBI guidelines and circulars:The Appellant contended that the SEBI Act and its guidelines are binding and that the Tribunal lacked jurisdiction to interfere with SEBI's regulations. The Tribunal acknowledged that SEBI Act is a special law and must be followed. However, it also noted that SEBI's regulations and circulars are supplementary to the Companies Act and must be read in harmony. Therefore, while the Tribunal's order must comply with SEBI regulations, the specific requirements of Sections 100-102 of the Companies Act, 1956, are not feasible to comply with due to the transfer of jurisdiction.3. Applicability of Section 242 of the Companies Act, 2013:The Tribunal's order was based on Section 242(2)(c) of the Companies Act, 2013, which allows for the reduction of share capital. The Appellant argued that this section applies only in cases of buy-back of shares and that the Tribunal's order did not pertain to buy-back. The Tribunal clarified that an order under Section 242(2)(c) can only be passed after a final hearing and not as an interim order. The Tribunal's interim order for the reduction of share capital was thus questioned.4. The effect of the repeal of the Companies Act, 1956 by the Companies Act, 2013:The Appellant argued that the repeal of the Companies Act, 1956, and the enactment of the Companies Act, 2013, reaffirmed the old law. The Tribunal noted that Section 434 of the Companies Act, 2013, mandates that cases transferred from the Company Law Board to the Tribunal be disposed of under the provisions of the Companies Act, 2013. Therefore, the Tribunal must decide cases based on the current law, not the law as it stood at the time of the cause of action.5. The power of the Tribunal to pass interim orders:The Appellant challenged the Tribunal's power to pass the interim order dated 24th August 2016, arguing that it was not for regulating the conduct of the company's affairs. The Tribunal agreed that the interim order did not pertain to the company's affairs and expressed doubt about its validity. However, since the order was not under challenge, the Tribunal refrained from interfering with it.Conclusion:The Tribunal set aside the order dated 30th September 2016, directing the Respondents to follow SEBI Act regulations and guidelines, except for Sections 100-102 of the Companies Act, 1956. The appeal was allowed with observations and directions for the early disposal of the main Company Petition.