Disclosure breach in share acquisition justified rectification and suspension of rights over excess holdings under company law.
Failure by a company to make the prescribed disclosure after acquiring more than 5% shares or voting rights under SEBI insider trading regulations was treated as a continuing contravention, and the subsequent delayed disclosure did not cure the default. The Tribunal held that section 111A(3) empowered rectification where the holding or transfer contravened SEBI requirements, including suspension of voting rights over the excess holding and directions to undo the mischief. It also held that the petition was not time-barred because the relevant knowledge of the violation arose only when the default came to light, and the petition was filed within the statutory period. The company petition succeeded.
Issues: (i) Whether the acquisition of shares by the respondents without compliance with the disclosure requirements under the SEBI regulations was valid and could be corrected by rectification under section 111A of the Companies Act, 1956; (ii) Whether the company petition was barred by limitation.
Issue (i): Whether the acquisition of shares by the respondents without compliance with the disclosure requirements under the SEBI regulations was valid and could be corrected by rectification under section 111A of the Companies Act, 1956.
Analysis: Regulation 13 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 required disclosure by any person holding more than 5% shares or voting rights, and the expression "person" was construed broadly with assistance from the General Clauses Act to include a company. The later disclosure made by the first respondent was beyond the prescribed time and did not cure the earlier default. The Tribunal further held that section 111A(3) empowered it to direct rectification where a transfer or holding was in contravention of SEBI regulations, and that the voting rights in excess of the permissible threshold could be suspended and the excess shares dealt with to undo the mischief.
Conclusion: The acquisition in excess of 5% was treated as non-compliant, and relief was granted against the respondents in respect of the excess holding.
Issue (ii): Whether the company petition was barred by limitation.
Analysis: The Tribunal accepted the petitioner's case that the relevant knowledge of the default arose only when the violation came to light on or about 4 June 2004, and the petition filed on 19 July 2004 fell within the statutory period contemplated under section 111A(3). The objection that the petition was time-barred was therefore rejected.
Conclusion: The petition was held to be within limitation.
Final Conclusion: The company petition succeeded, the respondents were restrained from exercising rights in respect of the excess holding, and the excess shares were directed to be dealt with by buyback at the prescribed value, leaving SEBI's separate jurisdiction unaffected.
Ratio Decidendi: A company holding more than 5% in a listed company must make the prescribed disclosure within the statutory time, and failure to do so attracts rectification relief under section 111A(3) where the contravention can be undone by suspending rights over the excess holding.
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