TaxTMI 
TaxTMI 
2023 (8) TMI 1666
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts leading to the filing of the appeal is, that appellant nos. 1 is a promoter and director of the company Khoday India Ltd. (hereinafter referred to as 'the company') holding 4,36,471 equity shares which is about 1.21% of the paid up equity share capital of the company. Appellant nos. 2 is a Hindu Undivided Family (HUF) and is also a promoter of the company holding 58,11,580 equity shares which is 18.56% of the paid up equity share capital of the company. 3. Vide letter dated November 2, 2022, the appellants requested the board of directors of the company to dematerialize the shares held by the appellants and credit the same to the beneficiary account of the appellants. The company vide its reply dated November 9, 2022 stated that the physical share certificates will be sent to the appellants by registered post. The company also advised that the physical share certificates would have to be submitted to the Depository Participant for dematerialization. It is alleged that the appellants did not receive the physical shares as promised by the company and, consequently, the appellants wrote a letter dated November 17, 2022 to the Registrar and Share Transfer Agent (hereinafter refer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted company. It was contended that even otherwise under the Companies (Prospectus and Allotment of Securities) Rules, 2014 (hereinafter referred to as 'Rules of 2014'), even an unlisted company is required to facilitate dematerialization of its existing securities in accordance with the provisions of the Depositories Act and Regulations made thereunder. In this regard, the learned counsel referred to Rule 9 and 9A of the Rules of 2014. 8. On the other hand, the learned counsel for the respondent nos. 1 SEBI submitted that the respondent company is still a listed company and since there were certain inter se disputes, SEBI only intimated the reply of the company to the appellants and closed the complaint. The learned counsel conceded that the communication made by SEBI to the appellants was not happily worded and in the event the matter is remitted, they will pass an appropriate order considering the Regulation 31 of the LODR Regulations. 9. The learned counsel for the company submitted that the appeal is not maintainable and that the appropriate remedy for the appellants is to file an appeal either under Section 58(3) and 58(4) of the Companies Act, 2013 (hereinafter referred....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r initiate proceedings for violation of the securities laws. 12. This procedure was apparently not done by SEBI and without applying its mind has mechanically disposed of the complaint without considering as to whether the provision of the LODR Regulations was violated or not. 13. Section 58 of the Companies Act provides as under :- "58. Refusal of registration and appeal against refusal.- (1) If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) Without prejudice to sub-section (1), the securities or other interest of any member in a public company shall be freely transferable: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve an alternate remedy to file an appeal before NCLT is, thus, patently erroneous. 15. The contention that no complaint could have been filed before SEBI on the SCORE platform in as much as the SEBI's Master Circular dated November 7, 2022 directs investors to first file a complaint before the stock exchange under Clause 19 of the said circular is immaterial. No doubt, the master circular permits an investor to raise the grievance before the stock exchange but that does not mean that SEBI does not have jurisdiction to deal with the complaint. Thus, the contention that this Tribunal should relegate the matter to the stock exchange is not tenable at this stage especially when SEBI has dealt with the matter. The objection so raised is, thus, untenable and is rejected. 16. It was urged that the resolution passed by the board of directors refusing to dematerialize the shares of the appellants was passed in larger interest of the company as per Article 15 of the Article of Association of the company is patently erroneous. For facility, Article 15 is extracted hereunder :- "15. Subject to the right of appeal under Section 108 of the Act, the Board may in its absolute discre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing a duplicate share. Thus, the contentions raised by the respondent company which was vehemently argued at some length are patently erroneous and rejected in limine. 19. The question now remains is, that whether any provision of SEBI laws has been violated by the company. In this regard, Regulation 31(2) of the LODR Regulations is extracted hereunder :- "31(2). The listed entity shall ensure that hundred per cent of shareholding of promoter(s) and promoter group is in dematerialized form and the same is maintained on a continuous basis in the manner as specified by the Board" 20. A perusal of the aforesaid provision indicates that the listed company shall ensure that 100% of the shareholding of the promoter is in dematerialization form. The appellant admittedly is a promoter of the company and, therefore, there is a mandate upon the registered company to ensure that the shareholding of the promoters are kept in a dematerialize form. SEBI was required to ensure that its laws are followed by the company, namely, Regulation 31(2) of the LODR Regulations. By not doing so, SEBI has failed to carry out their duty while disposing of the complaint of the appellants. 21.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....well as annual) to the depository and registrar to an issue and share transfer agent in accordance with the agreement executed between the parties; (b) it maintains security deposit at all times, of not less than two years, fees with the depository and registrar to an issue and share transfer agent, in such form as may be agreed between the parties; and (c) it complies with the regulations or directions or guidelines or circulars, if any, issued by the Securities and Exchange Board or Depository from time to time with respect to dematerialisation of shares of unlisted public companies and matters incidental or related thereto. (6) No unlisted public company which has defaulted in sub-rule (5) shall make offer of any securities or buyback its securities or issue any bonus or right shares till the payments to depositories or registrar to an issue and share transfer agent are made. (7) Except as provided in sub-rule (8), the provisions of the Depositories Act, 1996, the Securities and Exchange Board of India (Depositories and Participants) [Regulations, 2018] and the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer A....