2021 (2) TMI 1273 - Tri - Companies Law

NCLT dismisses petition for share rectification due to non-compliance with RBI guidelines.

E to E Transportation Infrastructure Private Limited Versus Zephyr Peacock India, Registrar of Companies

The National Company Law Tribunal dismissed the petition seeking rectification of the Register of Members by canceling excess equity shares allotted to a ... Seeking for rectification of Register of Members of the Applicant Company - cancellation of excess shares allotted to Respondent No. 1 - section 59 of the Companies Act,2013, R/ w Rule 70 of the NCLT, Rules 2016 - HELD THAT:- The Applicant has not impleaded necessary Party i.e. RBI, on whose letter, the instant Application has been filed. The RBI has refused to accept the request of the Applicant - without approaching the Registrar of Companies, present Application has been filed contending that they have received no objection from Respondent No. 1 (Zephyr Peacock India) vide their letter dated 13thDecember, 2019. And they have also sought an order the requirement of advertisement to be published as per Rule 70 read with Rule 35 of the NCLT, 2016 be dispensed with and is not required to be convened. The Second Respondent could not examine as to whether the issue in question would fall within their purview/jurisdiction or not. Therefore, they have filed formal reply without adverting the main issue in question. RBI, has refused to accept the request of the Applicant to accept the violation of FEMA Regulations by saying it is responsibility of Applicant to adhere to those Regulations - filing of instant Company petition is misconceived, not maintainable, and it is liable to be dismissed. Petition dismissed. Issues:Rectification of Register of Members regarding excess equity shares allotted to a foreign shareholder in violation of FEMA Regulations.Analysis:Issue 1: Rectification of Register of MembersThe petitioner, a private company, sought rectification of the Register of Members by canceling excess equity shares allotted to a foreign shareholder in violation of FEMA Regulations. The excess shares were allotted to the respondent without proper compliance with regulations. The respondent had no objection to the cancellation of the excess shares, as confirmed in their letter and board resolution. The Registrar of Companies filed a report stating that there was no reduction of share capital involved in the case. The petitioner approached the National Company Law Tribunal seeking rectification under Section 59 of the Companies Act, 2013. However, the Tribunal found that the petitioner did not follow the proper procedure by not approaching the Registrar of Companies as advised by RBI before filing the application. The RBI had clearly stated that adherence to FEMA regulations and cancellation of excess shares did not fall under their purview, advising the petitioner to approach the Registrar of Companies for the same. The Tribunal concluded that the petition was misconceived, not maintainable, and dismissed it.Issue 2: Compliance with FEMA RegulationsThe case highlighted the importance of compliance with FEMA Regulations, especially regarding foreign investments and the issuance of shares to foreign entities. The RBI's response emphasized that the responsibility to adhere to FEMA regulations, FDI policies, and other related guidelines rested solely with the entity. The Tribunal noted that the petitioner failed to follow the proper procedure and obtain necessary approvals before seeking rectification of the Register of Members. The Tribunal's decision to dismiss the petition underscored the significance of regulatory compliance and following due process in corporate transactions involving foreign entities. The judgment served as a reminder for companies to ensure strict adherence to regulatory requirements, especially when dealing with foreign investments and share issuances.Issue 3: Jurisdiction of the National Company Law TribunalThe Tribunal's analysis of the jurisdictional aspects of the case highlighted the importance of approaching the relevant authorities before seeking redressal through legal channels. The Tribunal noted that the petitioner did not involve the necessary party, i.e., the RBI, before filing the application. The RBI's communication clearly outlined that the issue of excess shares allotted to the foreign shareholder was not within their purview and advised the petitioner to approach the Registrar of Companies for resolution. By dismissing the petition, the Tribunal reinforced the principle that parties must exhaust all administrative remedies and follow prescribed procedures before seeking judicial intervention. The judgment underscored the Tribunal's role in upholding legal requirements and ensuring that parties adhere to regulatory frameworks before seeking legal remedies.In conclusion, the judgment highlighted the importance of regulatory compliance, proper procedure, and adherence to legal requirements in corporate transactions involving foreign entities. The dismissal of the petition by the National Company Law Tribunal emphasized the need for companies to follow due process, seek necessary approvals, and exhaust administrative remedies before approaching legal forums for rectification of corporate matters.