TMI Blog2001 (9) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Judge, by the impugned common order, made the notices of motion absolute in part. It was held that the plaintiffs do have a prima facie right to maintain the suit to seek a declaration that the acquisition of the disputed shares is void being in breach of the SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 1994 ( the 1994 Regulations ). It has also been held that the civil court does have jurisdiction to interpret the provisions of the statute and the 1994 Regulations so as to lay down the correct interpretation and the frontiers of jurisdiction of the statutory authorities concerned. It is, however, held that the exercise of jurisdiction by the court should not be extended to an extent so as to infringe the jurisdiction of the SEBI. That, prima facie, a suit was maintainable in common law for rectification of the company s membership register. The consequential decision on disinvestment, however, will have to be arrived after considering all aspects including a hearing by the SEBI in which case the actual order of disinvestment could be passed by the SEBI or the SEBI may pass any other order which it is entitled to pass, such as directing a pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition of shares in defendant No. 12 company/ Herbertsons Ltd., by defendant Nos. 3, 4, 5, 7 and 8 is not in breach of the 1994 Regulations, and further whether the conversion of debentures of defendant No. 12 into shares in favour of defendant No. 2 is in breach of the aforesaid Regulations. The plaintiffs contend that such conversion and acquisitions are void since they offend the provisions of the 1994 Regula-tions, and, therefore, the register of members of the company be suitably modified to exclude the names of the persons/companies who have so acquired the shares. 4. The defendants, who are the appellants before us, on the other hand, contend that the conversion of debentures into shares, and the acquisition of shares by the aforesaid defendants, do not in any manner breach the provisions of the 1994 Regulations or the Regulations framed in 1997. Moreover, the defendants have no right to claim rectification of register of members of the company by filing the suit before a civil court. 5. On a consideration of the material placed before the Court, the learned Judge has found a prima facie case in favour of the plaintiffs/respondents herein and has, therefore, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, representing 24.90 per cent of the subscribed capital as on 31-3-1997 by himself and/or his companies and/or his nominees. The case of the plaintiffs is that between May 1995 and May 1997, defendant No. 1 through companies owned and/or controlled by him, viz., defendant Nos. 2 to 5 acquired in direct contravention of the law further shares in Herbertsons Ltd. Defendant No. 12 company. The various acquisitions have been detailed in the plaint as under: ( a )On 14-12-1993, Airedale Investment Trading (P.) Ltd., defendant No. 2 company, acting in concert with defendant Nos. 1 and 3 to 11, acquired through negotiations 75,000 fully convertible debentures which were purported to be converted into 3,75,000 equity shares on 11-8-1995. The conversion of the debentures into equity shares was done after the 1994 Regulations had come into force and this was done without making a public announcement. (The trial Judge has held that since the debentures were purchased before the 1994 Regulations came into force, no relief, at this stage, could be granted to the plaintiffs in respect of these shares.) ( b )In December 1995, Imfa Holdings (P.) Ltd., defendant No. 3 company, acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid-up capital of defendant No. 12 company. (The record discloses that defendant No. 7 acquired these shares between 10-9-1998 and 19-9-1998 while defendant No. 8 acquired the shares on 16-12-1998). The additional shares acquired by defendant Nos. 3, 7 and 8 have not been registered in the register of members of defendant No. 12 company in favour of the aforesaid companies. 8. It is alleged that the aforesaid purported acquisitions were made by and/or for defendant Nos. 1 to 11 for a common objective and purpose of substantial acquisition of shares and voting rights in order to gain control over Herbertsons Ltd., defendant No. 12 company by co-operating on the basis of an understanding/agreement to gain such control. The plaintiffs, therefore, filed the suit for a declaration that the aforesaid acquisition of shares being contrary to the express provisions of law, conferred no rights directly or indirectly on the persons purporting to acquire the shares, and for consequential reliefs. 9. It is further averred that defendant Nos. 7 and 8 claim that they had lodged application for registration of transfer on 19-12-1998. Defendant Nos. 3, 7 and 8 have also filed Suit No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolutions for whose re-appointment had also been issued, by purporting to exercise voting rights in respect of the shares held by them as they intended to defeat the aforesaid Resolution by exercising their voting rights. The plaintiffs who hold shares aggregating 4.45 per cent in defendant Nos. 12 company were constrained to take appropriate steps to prevent defendant Nos. 2 to 5 from exercising voting rights in respect of the shares which have been acquired by them in clear contravention of the SEBI Regulations of 1994 and 1997. 13. In paragraph 12 of the plaint, the plaintiffs have averred that they came to know about acquisitions made by Kishore R. Chhabria, defendant No. 1 from an article which appeared in the Economic Times, Bombay Edition of 15-6-1997. Moreover, defendant Nos. 1 and 11, viz., Kishore R. Chhabria and Madan D. Chhabria have unequivocally claimed that they are persons having control over defendant Nos. 2 to 10 companies, and they are acting in concert with each other which is evident from the declaration dated 17-4-1997 filed by defendant No. 1 with Herbertsons Ltd., defendant No. 12 company, pursuant to the requirements of regulation 3(3) of the 1997 Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al general meeting or extraordinary general meeting of Herbertsons Ltd., defendant No. 12. 15. The plaintiffs have averred that had such public announcement, as required by law, been made by the concerned defendants, the plaintiffs would have made competitive bids for the acquisition of the shares involved. The plaintiffs continue to be ready and willing to do so. Apart from other legal submissions, the plaintiffs have also submitted that as shareholders, their valuable rights of property are being adversely affected by the breaches of law by defendant Nos. 1 to 11 and the plaintiffs are, therefore, entitled to bring these flagrant violations of law to the notice of the Court, and to seek the reliefs prayed for, by acquiring further shares and voting rights in defendant No. 12 company in breach of law. Defendant Nos. 1 to 11 are detrimentally affecting, and continuing to affect the rights and interests of the plaintiffs, the other shareholders and the public. 16. In the circumstances, the plaintiffs have submitted that the Court may be pleased to declare that the purported conversion of debentures into equity shares in favour of defendant No. 2 and the purported acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ab initio and of no legal effect whatsoever, ( v )the refusal of Herbertsons to register the said 3,64,750 equity shares in favour of defendant No. 5 was justified as being for sufficient cause, ( vi )that this Hon ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 3,64,750 shares in favour of defendant No. 5, ( vii )[Red ink rider VI] that this Hon ble Court be pleased to declare that the purported acquisition of 54,000 equity shares in Herbertsons by defendant No. 3 is illegal, null, void ab initio and of no legal effect whatsoever, ( viii )[Red ink rider VII] that this Hon ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 54,000 shares in favour of defendant No. 3, ( ix )[Green ink rider F] that this Hon ble Court be pleased to grant a permanent injunction restraining defendant No. 12 from registering the transfer of the said 1,25,000 shares and 25,800 shares in favour of defendant Nos. 7 and 8 respectively. ( x )[Green ink rider F] that this Hon ble Court be pleased to grant a permanent injunction restraining defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27-10-1997 be made subject to orders of this Court on the notice of motion. On 23-10-1997, an ad interim injunction in terms of prayer ( b )( i ) of the notice of motion was granted until 13-11-1997, and accordingly, it was ordered and directed that all the proceedings and decisions taken at the annual general meeting of defendant No. 12 scheduled to be held on 27-10-1997 will be subject to the orders of this Court on the notice of motion. Thereafter, the annual general meeting was held on 27-10-1997 which proceeded peacefully, and the resolutions moved were passed unani-mously by show of hands. The existing management was not disturbed in any manner whatsoever. 18. The next annual general meeting of defendant No. 12 company was to be held on 30-12-1998. Again, the plaintiffs took out Notice of Motion No. 3932 of 1998 with substantially the same prayers. In the affidavit in support of the notice of motion, filed by plaintiff No. 1 on 14-12-1998, it was stated that the plaintiffs had become aware of the devices adopted by the defendants for the acquisition of the shares. It was stated that Royal Wines Tracstar Investments (P.) Ltd., were proprietary concerns and/or comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also all the other votes shall be kept separately, but not counted. The votes shall be kept in separate covers under the seal of the company. The votes, if any, cast by the transferors or their proxies in respect of shares acquired by defendant No. 5 shall be kept in a separate cover. (3)The meeting shall be held and the voting shall be taken under the chairmanship of the person who is to preside over the meeting, but in the present of an officer of this Court, to be nominated by the Prothonotary and Senior Master of this Court. (4)The separate covers in which the votes are to be kept as indicated above shall be sealed by the chairman of the meeting as also the officer who is to be present at the meeting and at the voting as directed above. (5)The officer of the Court shall deposit the containers/envelops with the Prothonotary and Senior Master." (p. 21) 20. We may, at this stage, notice that Chamber Summons No. 1153 of 1998 was moved by the defendants seeking further particulars from the plaintiffs to enable them to file an appropriate reply to the notice of motion and the plaint. This was opposed by the plaintiffs. Later, when the Chamber Summons came up for orders alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of them. No relief could, therefore, be granted affecting their voting rights violating all tenets of corporate democracy. It is also alleged that the plaintiffs were acting in collusion with Vijay Mallya who was supplying to the plaintiffs relevant material from the record of the company. This is further obvious from the fact that while the plaintiffs have challenged the acquisition of shares by defendant Nos. 1 to 11, they have not challenged the acquisition of 5.2 per cent of the equity shares by the said Vijay Mallya through the companies under his control. 22. Apart from the legal objections, defendant No. 11 has disclosed facts in his affidavit in reply relating to the acquisition of shares by defendant Nos. 2 to 8 companies. The affidavit in reply also reveals the manner in which the acquisition of shares took place through different companies, and how all those companies came under the control of defendant Nos. 1 and 11. It is stated that on 14-12-1993, on the basis of a negotiated arrangement, 22,15,800 equity shares of Herbertsons Ltd., representing 26 per cent of its total equity share capital were sold to defendant Nos. 2, 6, 7, 8, 9 and 10 companies. These sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector of Imfa along with three others. On that day, Mr. Ram Raheja, husband of the sister of wife of Kishore R. Chhabria, defendant No. 1 (co-brother of defendant No. 1) and three other directors of Imfa had resigned. On that day, Imfa was the registered shareholder of 10,38,791 equity shares of Herbertsons Ltd., defendant No. 12, (about 10.91 per cent of Herbertsons share capital). It is stated that on 7-12-1995, Imfa had lodged for registration of transfer into its name the equity shares purchased by it between 27-10-1994 and 21-11-1995. On the same day, Imfa had also addressed to SEBI informing it of this fact and seeking other clarifications. On 21-5-1995, SEBI addressed a letter to Imfa alleging that the provisions of the 1994 Regulations were applicable to the aforesaid acquisition of shares by Imfa and directed Imfa to comply with the 1994 Regulations. On 30-5-1996, defendant No. 12 company registered the transfer of shares in the name of Imfa, though earlier it had refused to do so. A reference is made to the correspondence that ensued between SEBI and Imfa regarding the applicability of the 1994 Regula-tions. By a letter dated 7-12-1995, as earlier noticed, Imfa informed S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of transfer of the said shares to Mahameru s name. 26. So far as Shirish Finance Investments Ltd. defendant No. 5, is concerned, it has been stated by defendant No. 11 that on 18-2-1997, he and his wife purchased the entire shareholding of defendant No. 5 from one S.J. Chhabria, a cousin of defendant No. 1 and a nephew of defendant No. 11 and his wife. They were not related to defendant No. 11 within the meaning of the Act. On that day, he was also appointed as Director of defendant No. 5 company. By this time, defendant No. 5 company had already acquired 3,64,750 equity shares of Herbertsons Ltd., representing 3.893 per cent of its equity capital. It is stated that the board of directors of defendant No. 5 company had resolved on 22-8-1996 to purchase shares of Herbertsons Ltd., not exceeding 4 lakhs shares, and pursuant to the said resolution, the aforesaid shares were purchased between 27-8-1996 and 14-2-1997. The aforesaid shares were duly lodged with Herbertsons Ltd., defendant No. 12, together with the share transfer form and other documents, but the board of directors of Herbertsons Ltd., by its Resolution of 3-6-1997 decided to defer consideration of the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s share capital and, therefore, regulation 10 was not attracted. ( d )Since defendant Nos. 3, 4 and 5 companies at the time of their acquisition by defendant No. 11 and/or his companies already held or had already acquired shares in Herbertsons Ltd., there was no violation of the 1994 Regulations since the concept of indirect acquisition of shares of a listed company by acquiring control of an unlisted company was not present in the 1994 Regulations. This concept was introduced later in 1997 based on the Bhagwati Committee Report. Even SEBI has recognised this position by its order dated 6-3-1997 in the case of Sesa Goa and the Appellate Authority by its judgment dated 20-11-1997 has upheld SEBI s order. The concept of indirect acquisition has been sought to be introduced only in the 1997 Regulations which have prospective application. ( e )The aforesaid six companies, viz., defendant Nos. 2 and 6 to10 as well as defendant Nos. 3, 4 and 5 companies and he, (defendant No. 11) his wife and/or the Director/shareholders of these companies are not "persons acting in concert" under regulation 2( d ) of the 1994 Regulations. The shareholders and the Directors of these companies we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the investment in Herbertsons shares acquired by defendant Nos. 3, 4 and 5. 30. The affidavit in reply of defendant No. 11 has been adopted by defendant Nos. 1 to 10, but defendant No. 1 has added a few more facts. He has stated that though he was the Vice-Chairman and whole-time Director of Herbertsons Ltd., defendant No. 12 company, with effect from 1-4-1995, he did not control the board of directors. For the first time, he became a Director of the company in 1992 and participated in its management. He was regularly consulted as a Director of the company. He has made an allegation that the funds of defendant No. 12 company were syphoned off with the connivance of Balaji Group, the plaintiffs herein. 31. In its reply, defendant No. 12 adopted the reply filed by it earlier to Notice of Motion No. 3932 of 1998 on 5-2-1999. It denied the charge of collusion between the plaintiffs and Vijay Mallya. It substantially supported the case of the plaintiffs that defendant Nos. 3, 4 and 5 companies were mere device to acquire the shares of Herbertsons Ltd., defendant No. 12, in a clandestine manner. It has further alleged that defendant No. 1 had siphoned off Rs. 120 crores of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulations include Nil holding also. In terms of the Regulations, an acquirer need not be an existing shareholder of the company. Since the acquisitions were made without making a public announcement, the person concerned was guilty of breach of the Regulations. The notice called upon Mr. Ram Raheja to show-cause failing which SEBI would have to take further action in the matter. 34. It appears that since Mr. Ram Raheja had resigned as a Director of Imfa, defendant No. 3 company, the second show-cause notice was issued to defendant No. 3 company itself on 31-3-1997. This notice also reiterated what was alleged in the earlier notice, and referring to regulation 10, it was observed that an acquirer who makes outright acquisitions carrying voting rights of more than 10 per cent is required to make a public announce-ment. The notice called upon the Managing Director of defendant No. 3 company to show-cause as to why criminal prosecution should not be initiated under section 24 of the Act for violation of Regulations 6 and 10. 35. The aforesaid two notices were issued by the SEBI before the filing of the suit. After the filing of the suit, notice was issued by SEBI to defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an enquiry and is presently seized of the matter. Defendant Nos. 1 and 11 are participating in the said proceedings. Apart from the proceedings initiated by SEBI, defendant Nos. 3 and 5 have filed appeals under section 111A(2) of the Companies Act before the CLB being appeal Nos. 22 and 21 of 1998 respectively, challenging the refusal of defendant No. 12 company to register transfer of shares in their favour. These appeals are pending before the CLB. As stated by the counsel, defendant Nos. 6, 7 and 8 also propose to file appeals under section 111A(2). 37. To complete the picture, we may notice that another suit being Suit No. 297 of 1999 has been filed by defendant Nos. 3, 7 and 8 on 18-12-1998 for a declaration that they are the beneficial owners of the unregistered shares acquired by them. In that suit, Notice of Motion No. 184 of 1999 has been taken out by them for restraining the defendants therein from preventing them to attend and vote at the annual general meeting on 30-12-1998. The notice of motion was disposed of by a learned Judge of this Court on 29-12-1998, when an agreed order came to be passed. This notice of motion was not pressed by Mr. Rafiq Dada, senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l movements in the price of the shares and in particular information about transactions mentioned above. ( d )The above conditions shall not be applicable to an acquisition by a person who has announced his firm intention to make an offer to the Company and also notified the Stock Exchange." "40B. Takeover Offer (1)The Company also agrees that it is a condition for continued listing the whenever a takeover offer is made to or by it whether voluntarily or compulsorily, the following requirements shall be fulfilled. (2)A public announcement of a takeover offer shall be made both by the offeror company and the offeree company when : ( a )any person in his own name or in the name of the any other person acquires, whether by a series of transactions over a period of time or otherwise, shares which, when aggregated with shares already held or acquired by such person, shall carry 10% or more of the total voting rights of the offeree company, or ( b )secure the control of management of a company, by acquiring or agreeing to acquire, irrespective of the percentage of the voting capital, the shares of the Directors or other members, who by virtue of their shareholdings together ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Section 15T provides that save as provided in sub-section (2), any person aggrieved by an order made, by an Adjudicating Officer under the Act may prefer an appeal to the Securities Appellate Tribunal having jurisdiction. Sub-section (2) provides that no appeal shall lie to the Tribunal from an order made by an Adjudicating Officer with the consent of the parties. Section 15Y provides as under: " Civil court not to have jurisdiction. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating Officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act." Section 15Z provides a further appeal to the High Court in the following terms : " Appeal to High Court. Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the High Court within 60 days from the date of communication of decision or order of the Securities Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate of registration and the manner of suspension or cancellation of certification of registration under section 12." Section 32 provides : "32. Application of other laws not barred. The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force." 41. In exercise of powers conferred by section 30 of the SEBI Act, the Board with the previous approval of the Central Government, framed Regulations, viz., Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994. These Regulations came into force with effect from 4-11-1994. Under regulation 2( b ), acquirer has been defined as follows : "2( b ) acquirer means any person who acquires or agrees to acquire shares in a company either by himself or with any person acting in concert with the acquirer;" Person acting in concert has been defined as follows: "2( d ) person acting in concert comprises persons who, pursuant to an agreement or understanding acquires or agrees to acquire shares in a company for a common objective or purpose of substantial acquisition of shares and includes : ( i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any company, shall within two months of notification of these regulations disclose his aggregate shareholding in that company, ( a )to all the stock exchanges on which the shares of the said company are listed, and ( b )to the aforesaid company (2) Every company whose shares are held by the persons referred to in sub-regulation (1) shall disclose to the stock exchange within two months from the date of notification of these regulations the aggregate number of shareholdings of each of the acquirer referred to above. 6. Acquisition of 5 per cent and more shares of a company. (1) Any acquirer, who holds five per cent or less than five per cent shares in a company and acquires more than five per cent shares: ( a )in pursuance of a public issue, or ( b )by one or more transactions, or ( c )in any other manner not covered by ( a ) and ( b ) above, shall disclose the aggregate or his shareholding in that company to the company and to all the stock exchanges where the shares are listed. (2) The disclosures mentioned in sub-regulation (1) shall be made within four working days of ( a )the receipt of intimation of allotment of shares in respect of shares acquired un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market which when taken together with this existing shareholders, would carry more than ten per cent of the voting rights, unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with these regulations. (2) An acquirer who on the date of commencement of these regulations holds shares which carry more than ten per cent of the voting rights in the capital of the company, shall not acquire any further shares in the company from the open market unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with the regulations. 11. Who should make the public announcement of offer. Before making any public announcement of offer referred to in regulation 9 or regulation 10, the acquirer shall appoint a merchant banker holding a certificate of registration given by the Board. 12. Public announcement of offer. A public announcement to be made under regulation 9 or 10 shall be made in at least one national English daily and one vernacular newspaper of that place, where the shares of the company are listed and most frequently traded. 13. Timing of the public announcement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st having a bearing on the substantial acquisition of shares. 16. Brochures, advertising material, etc. (1) The public announcement of offer or any other advertisement, circular, brochure or publicity material issued in relation to the acquisition of shares shall contain information essential for the shareholder to make an informed decision on the offer made. (2) Copies of any advertisement, brochure or document issued to the public under sub-regulation (1) shall be submitted to the Board at least twenty-four hours before its issuance. 17. Letter of offer. (1) Within fourteen days of the public announcement made under regulation 9 or 10, the acquirer shall through a merchant banker submit the draft of a letter of offer to the Board for its approval. (2) The acquirer shall along with the letter of offer referred to in sub-regulation (1) make payment of a fee to the Board for a sum of Rs. 25,000 payable either by cheque or bank draft in favour of the Securities and Exchange Board of India at Bombay. (3) The merchant banker shall submit a due diligence certificate to the Board stating that the statements made in any documents advertisement or brochure issued to the publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( b ) as the case may be. 20. General obligations. (1) The announcement of public offer to acquire shares shall be made only when the acquirer has every reason to believe that he shall be able to implement the offer. (2) Within fourteen days of the public announcement of offer, the acquirer must also submit a letter of offer to the Board of Directors of the company, whose shares are being acquired. (3) The acquirer shall state the period for which the offer to acquire shares from the other shareholders shall remain open: Provided that every such offer shall be kept open for a period of not less than four weeks from the date of the offer. (4) The directors of the company of which the shares are being acquired shall not sell or enter into an agreement for sale of assets not being sale or disposal of assets, in the ordinary course of business, of the company or its subsidiaries or issue any authorised but unissued securities carrying voting rights during the period, when the offer is open for acceptance unless the approval of the general body of shareholders is obtained. (5) Every document issued to shareholders or any advertisement published in connection with the offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to less than 20 per cent of the voting capital of the company. (5) Where a person seeking to make acquisition of shares by reason of holding securities, which may carry voting rights at a later point of time, the percentage referred to in the sub-regulations (2) and (3), shall be computed with reference to voting capital of the company including the securities which would carry voting rights. (6) Where number of shares offered for sale by the shareholders are more than the shares agreed to be acquired by the person making the offer, such person shall subject to sub-regulation (1) accept the offers received from the shareholders on a proportional basis. 22. Completion of the offer. The acquirer shall within a period of four weeks from the date of the closure of the offer complete all procedures relating to the offer including payment of consideration to the share-holders who have accepted the offer. 23. Competitive acquisition. (1) Any person other than the acquirer making a public announcement may, within two weeks of such announce-ment, make a competitive bid for acquisition. (2) The provisions of this chapter shall mutatis mutandis apply to the competitive bid ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." Regulations 10 and 11 provide as follows: "10. Acquisition of 10 per cent or more of the shares or voting rights of any company. No acquirer shall acquire shares or voting right which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise ten per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations. 11. Consolidation of holdings. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, not less than 10 per cent but not more than 51 per cent of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concept with him, additional shares or voting rights entitling him to exercise more than 2 per cent of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. (2) No acquirer shall acquire shares or voting rights which (taken together with shares or voting ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the date of public announcement; ( c )the price paid by the acquirer under a preferential allotment made to him or to persons acting in concert with him, at any time during the twelve months period upto the date of closure of the offer; ( d )the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the 26 weeks preceding the date of public announcement. (3) Where the shares of the target company are infrequently traded, the offer price shall be determined by the issuer and the merchant banker taking into account the following factors: ( a )the negotiated price under the agreement referred to sub-regulation (1) of regulation 14; ( b )the highest price paid by the acquirer or persons acting in concert with him for acquisitions including by way of allotment in a public or rights issue, if any, during the twenty-six week period prior to the date of public announcement; ( c )the price paid by the acquirer under a preferential allotment made to him or to persons acting in concert with him, at any time during the twelve month period upt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial allotment. (3) Where the shareholders have been provided with an option to accept payment either in cash or by way of exchange of security then subject to the provisions of regulation 20, the pricing for the cash offer could be different from that of a share exchange offer or offer for exchange with secured instruments, provided that the disclosures in the offer documents contains suitable justifications for such differential pricing. (4) Where the offer is subject to a minimum level of acceptances the acquirer may subject to the provisions of regulation 20, indicate a lower price for the minimum acceptance of 20 per cent should the offer not receive full acceptance. 21. Minimum number of shares to be acquired. (1) The public offer shall be made to the shareholders of the target company to acquire from them an aggregate minimum of 20 per cent of the voting capital of the company: Provided that where the open offer is made in pursuance to sub-regulation (2) of regulation 11, the public offer shall be for such percentage of the voting capital of the company as may be decided by the acquirer. (2) Where the offer is conditional upon minimum level of acceptances from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2 by virtue of acquisition of 75,000 fully convertible debentures on 14-12-1993, were equity shares which were redeemable on purchase of convertible debentures on a date prior to the Regulations coming into force. No injunction could be granted so far as the voting rights which flow therefrom. ( c )As regards the equity shares purchased by defendant Nos. 3 and 4, registered in their names, and the unregistered equity shares acquired by defendant No. 5, the plaintiffs had made out a prima facie case to justify the injunction as sought for by them since these purchases were made in excess and in breach of the mandatory requirement of prior public announcement provided under the Regulations. ( d )The action brought about by the plaintiffs was a personal action and not a derivative action. The right to claim rectification of register of members of the company was common law right and, therefore, the plaintiffs could maintain a suit for rectification of register of members. ( e )The plaintiffs have a prima facie right to maintain the present suit to seek a declaration that the acquisition of the disputed shares was void being in breach of the concerned Regulations. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993 (2) MLJ 1441. 46. In the light of the submissions urged by Mr. Nariman, the defendants replied that their plea was not one of ouster of jurisdiction, which could be tried as a preliminary issue in view of section 9A of the Code of Civil Procedure. Their submission was that the Court may not exercise its discretionary jurisdiction in view of the fact that the aforesaid disputes could appropriately be agitated either before the CLB or the SEBI. The jurisdiction of the civil court and that of the authorities concerned, was somewhat overlapping and concurrent. Mr. Nariman, however, drew the attention of the Court to a letter dated 22-1-1999 written on behalf of the defendants to SEBI requesting it to defer the determination in view of the fact that the High Court was seized of the matter. He, therefore, insisted that the defendants must agree to an issue being framed on the question of jurisdiction and the same be tried as a preliminary issue or, alternatively, the defendants must agree not to press the issue in the manner in which it is worded in para 1( g ) of the Affidavit-in-Reply of defendant No. 11, which is as follows: "This Hon ble Court does not have jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y contending that (1)in view of section 111A of the Companies Act, this Court had no jurisdiction to entertain the suit; (2)in view of the provisions of the Regulations, SEBI is the only competent authority to look into the allegations regarding breach of SEBI Regulations; and (3)that the repeal of the 1994 Regulations by the 1997 Regulations deprived the plaintiffs of any cause of action. We shall consider the submissions urged by Mr. Nariman at the appro-priate stage. 49. We may, however, notice the main submissions urged on behalf of the defendants/appellants, as well as the plaintiffs/respondents before us. Mr. Chidambaram, appearing on behalf of defendant No. 11, viz., M.D. Chhabria took as through the record so far it relates to the acquisition of shares of Herbertsons, Defendant No. 12, by the defendants. He submitted that the facts of the case would disclose that there was no violation of the 1994 Regulations which govern the transactions. His first main submission in this regard is that regulation 10(1) of the said Regulations refers to the acquisition of further shares by an acquirer who holds shares having ten per cent or less of voting rights in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition before 20-9-1995, after the introduction of section 111A in the Companies Act, and in particular after 15-1-1997 (after amendment of section 111A), a public company cannot refuse to register transfer of shares. It is bound to register the transfer of shares and the right to apply for rectification can be availed of only by the five specified categories mentioned in section 111A(3). Though in the case of private companies, members of the company have a right to apply for rectification in view of the provisions of sections 38, 155 and 111 of the Act, in respect of public companies this right has been taken away by the statute from the members in respect of shares in which the members have no interest as investors. The right to apply for rectification is now a statutory right and available only to five specified categories of persons and only on the grounds specified in section 111A. 49.3 The contention of the plaintiffs that the purchase of shares by the appellants and the resultant take over arising out of the voting in a particular manner are two parts of a contract, and that it is the latter part which remained to be completed, is not sustainable. Section 23 of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icipate in a higher price being offered by someone who wants to acquire a substantial share holding. Having regard to the interpretation of these Legislations and the Regulations, the transactions impugned can never be regarded as a nullity or void or requiring any interference of the Court. The statutory scheme does not contemplate that Court can rectify the register of members for alleged breach of the SEBI Regulations and that too at the instance of a person who has no interest in the shares. (2) Assuming that there was a breach of 1994 Regulations, the said Regulations having been repealed and section 6 of the General Clauses Act being not applicable to the repeal of the aforesaid Regulations, and having regard to the savings clause in the 1997 Regulations, pending proceedings are not saved and it can be inferred that the intention of the Legislature is that the pending proceedings shall not continue, but fresh proceedings may be initiated under the provisions. The savings clause in the 1997 Regulations does not keep alive any obligation that an acquirer may have incurred (if any) under the 1994 Regulations. This would include an obligation to make a public offer, which in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecedented order. On a proper interpretation, neither the 1994 nor the 1997 Regulations have been breached. The 1994 Regulations permitted the acquisitions which were indirect; it did not prohibit acquisition by persons who are not shareholders and did not apply to the purchase of shares of unlisted companies. The plaintiffs have no right to maintain any action before this Court and at best they could make a complaint to the SEBI. 51. Mr. Rafiq Dada, appearing for the appellants in Appeal No. 12 of 2000, viz., defendant Nos. 7 and 8 to the suit, adopted the submissions urged by Mr. Chidambaram and Mr. Desai. He submitted that the aforesaid two defendants had made creeping acquisitions of 1.31 per cent and 0.21 per cent shareholding in defendant No. 12 Herbertsons which are saved by the 1997 Regulations. 52. Similarly, the appellants in other appeals have adopted the arguments advanced by Mr. Chidambaram and Mr. Desai. 53. Mr. Nariman, appearing on behalf of the plaintiffs in all the appeals replied to the submissions advanced on behalf of the appellants-defendant, and submitted that the impugned order passed by the learned Judge ought not to be interfered with as it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the purity of the register of members. (5) The transactions relating to the acquisition of shares by the defendants in breach of the mandatory provisions of the 1994 Regulations render the transactions void, and the plaintiffs have a right to claim a declaration from a civil court that the transactions are void. (6) The repeal of the 1994 Regulations by the 1997 Regulations, did not in any manner effect the invalidity of the transactions. What was illegal and invalid under the 1994 Regulations does not become legal and valid merely because the 1994 Regulations have been repealed. (7) The allegations of misconduct levelled against the plaintiffs by the defendants did not in any manner help their case because even in equity, the principle that the plaintiffs must come with clean hands is applicable to his conduct in regard to the subject-matter of litigation, or which has some connection with the reliefs sought, or has an immediate and necessary relation to the equity sued for. The Court is not concerned with the plaintiffs general conduct. In the instant case, the allegations made by the defendants relate to matters which are not subject-matter of the litigation nor do they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to entertain any suit or proceeding in respect of any matter which an Adjudicating Officer appointed under the Act or the Tribunal is empowered to determine, and further prohibits the grant of injunction by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act. Similarly, section 20A bars jurisdiction of civil court in respect of any matter which the Board is empowered by, or under, the Act to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by the Board by, or under, the Act. Section 30 vests in the Board the power to make regulations. It is in the exercise of this power that the 1994 Regulations were framed by the SEBI. Section 32, however, clarifies that the provisions of the Act shall be in addition to, and not in derogation of the provisions of any other law for the time being in force. 55. The regulations framed by the SEBI came into force with effect from 7-11-1994. Regulation 3 makes the provisions of Chapter III of the regulations inapplicable to acquisition of shares in companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the other shareholders of the company in accordance with the regulations. The words used in these regulations are shall not acquire any further shares. Regulation 9(3) provides that where an acquirer acquires securities which would entitle him to more than ten per cent of the voting rights together with the voting rights on shares already held by him, then, such person shall make a public announcement referred to in sub-regulation (1) at the time immediately before his entitlement to obtain voting rights on such securities. Regulation 9, therefore, forbids further acquisition of shares by the acquirers mentioned therein through negotiations, and obliges them in cases covered by regulation 9 to make a public announcement to acquire shares at a minimum offer price from the other shareholders of the company. 57. Regulation 10, on the other hand, deals with acquisition of shares from the open market. Regulation 10(1) prohibits an acquirer who holds shares carrying ten per cent or less of voting rights in the capital of the company from acquiring any further shares in the company from the open market which, when taken together with his existing shareholding, would carry more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transparency in such transactions. The letter of offer is required to be placed before the Board for its approval through a merchant banker appointed by the acquirer. The merchant banker is required to submit a due diligence certificate to the Board stating that the statements made in any document, advertisement or brochure issued to the public contains statements, which are true to the best of his or its knowledge. The letter of offer is required to be sent to all the shareholders. The manner in which the payment is required to be made and the minimum offer price determined is laid down in regulation 19. Regulation 21 obliges the acquirer to make a public offer to be made to the remaining shareholders of the company to acquire from them an aggregate minimum of 20 per cent of the total shares of that company. However, under regulation 21(4), the offer shall not result in the public shareholding being reduced to less than 20 per cent of the voting capital of the company. Under regulation 23, any person, other than the acquirer making a public announcement, may within two weeks of such announcement, make a competitive bid for acquisition, and to such a bid, the provisions of Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting shareholders a fair return on their investment, and permits any other person to make a matching bid which may ultimately benefit the shareholders of the company. On the basis of the particulars furnished, the shareholder is enabled to take a decision as to whether he should retain his holding or dispose of them for the price offered. Thus, transpar- ency in dealings as well as fairness to the shareholders of the company are ensured. 59. It is trite to say that the statute must be construed according to the intent of its framers, and it is the duty of the Court to act upon the true intent of the Legislature. Cannons of interpretation lend a guide, without affording a strait jacket formula. It is often said that the function of the Courts is only to expound and not to legislate, a theory which has in the recent past invited dissents in the sense that the gaps in the legislation may call for a judicial filling up with a view to dealing with situations and circumstances that may emerge after enacting a statute, not within the imagination of the Legislature, when its application may be called for. If the words are plain and clear, no difficulties arise, but where a statutory p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping these principles in mind, we now proceed to consider the first submission urged on behalf of the defendants which consists of four limbs, and which directly raise questions of interpretation of the 1994 Regulations. Mr. Chidambaram submits that the defendants have not violated the regulations since no action of theirs is in breach thereof. Firstly, the acquiring companies not being existing shareholders of the target company on the date of acquisition of shares, or on the date of coming into force of the regulations, they do not come within the mischief of regulation 9 or 10 which relate to an acquirer, who holds shares . Secondly, by reason of regulation 3( d ), the provisions of Chapter III relating to the take-overs do not apply to acquisition of shares of unlisted companies. It did not matter that these companies had, even before their take-over, acquired substantial shares of the target company over which defendant No. 11 gained control indirectly as a result of their take-over. Thirdly, in the facts of the case, there was no obligation to make a public announcement or public offer. Lastly, having regard to the pattern of shareholding in Herbertsons, defendant No. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 11. ( ii ) Nahirathya Bysack v. Shyam Sunder Haider AIR 1953 SC 148 @ 152. ( iii ) P.K Unni v. Nirmala Industries AIR 1990 SC 933 @ 936. Mr. Nariman, for the plaintiffs, submitted that the principles of interpretation of statutes are well settled though at times some difficulties arise in their application to the facts of a particular case. He, however, submitted that even while construing the regulations of this nature having penal consequences, and conceding that the words in the statute must be given their plain, literal and grammatical meaning, that is not to say that in construing such a statute, the other canons of interpretation have no application. A penal statute, like any other statute, attracts the rule that where two interpretations are reasonably possible, that which helps to achieve the objective of the statute must be preferred. It must be so construed as to be consistent with the legislative intent and purpose so as to suppress the mischief and advance the remedy. He relied upon the decision of the Supreme Court in NEPC Micon Ltd. v. Magma Leasing Ltd. AIR 1999 SC 1952. The Apex Court was considering penal provisions viz., sections 138 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company wrongfully withholds possession of such property of the company. Secondly, it was contended that the Legislature never intended to include past officers and employees of a company within the ambit of section 630 which provides for prosecution of an officer or an employee of a company for wrongfully withholding the property of the company inasmuch as it has used different language where it was so intended, namely, in sections 538 and 545. The Apex Court did not approve of the judgment of the Calcutta High Court which had placed a narrow construction on the provision contained in sub-section (1) of section 630 as their Lordships were of the view that such a narrow construction defeated the very purpose and object with which the provision has been introduced. It was observed that the beneficient provision contained in section 630 no doubt penal, has been purposely enacted by the Legislature with the object of providing a summary procedure for retrieving the property of the company. It is the duty of the Court to place a broad and liberal construction on the provision in furtherance of the object and purpose of the legislation which would suppress the mischief and advance the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Regulations to find out their true meaning and import. The term an acquirer who holds shares is used in Regulations 9 and 10, with which we are concerned in this case. The term acquirer has been defined under regulation 2( b ) of the 1994 Regulations to mean any person who acquires or agrees to acquire shares in a company either by himself or with any person acting in concert with the acquirer. By definition acquirer includes persons acting in concert with the acquirer and, therefore, the acquisition of the acquirer and all those who act in concert with him is considered to be the acquisition of the acquirer. Mr. Chidambaram submitted that since the term holder of a share is not defined in the 1994 Regulations, the definition assigned to that expression in the Act must be imported. In regulation 10, the word acquirer is qualified by the words who holds shares . Therefore, to fall within the purview of regulation 10, an acquirer is required to have an existing shareholding in the company, meaning thereby that the acquirer must be one whose name is present on the register of the company as a shareholder/member. He emphasised the fact that regulation 10 does not prohi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competitive bid. Therefore, it must be construed so as to achieve the objective rather than defeat by strategem. He placed reliance upon two decisions, one of the Privy Council and the other of the Supreme Court to support his submission that the person who is said to hold the shares within the meaning of regulations 9 and 10 need not necessarily be a person whose name appears in the register of members as a shareholder of the company. The acquisition of shares is complete when the shares are paid for and the shares delivered to the transferee with transfer forms. He further sought to distinguish the judgment of the Tribunal dated 16-7-1998 in Fascinating Leasing Finance P. Ltd. s case ( supra ) and further submitted that in any case, the decision was erroneous and contrary to well settled law. 65. In Howrah Trading s case ( supra ), the facts were that the shares purchased by the Appellant from other persons under blank transfers had not been registered with the various companies. The Appellant claimed in Income-tax assessment proceeding that these shares, although not registered in the name of the applicant were the property of the applicant and, therefore, dividend in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nution or curtailment in its rights as a shareholder in respect of the shares so attached. Lastly, whether by the pledge of certain shares, the cotton mills company suffered any such diminution or curtailment. In this context, the Court observed that the expressions a member , a shareholder or holder of a share are used as synonyms to indicate the person who is recognised by a company as its owner for its purposes. On a careful consideration of the provisions of the Act, a question arose as to whether a shareholder ceases to be entitled to exercise any of the rights conferred on him. The Court then considered the consequences of a receiver being appointed under the Land Revenue Act, of attachment of shares under the said Act, and the pledge of the shares, and came to the conclusion that these events did not in any manner affect the rights of the shareholder, viz., the cotton mills company to call a meeting in accordance with the notice issued under section 169. This decision, no doubt, supports the submission urged on behalf of the defendants that under the Act, the expressions a member , a shareholder or a holder of a share are used as synonyms to indicate the person w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were not members of the company as their names were not recorded in the register of members. Rights under sections 397 and 398 being statutory rights, had to be strictly construed in the terms of the statute, which was given to any member of the company, which could not be enlarged to include any one who may be entitled to become a member . After a careful examination of the scheme of the Act and the provisions of sections 397 and 398 and noticing that the question was no longer res integra so far as England was concerned in view of the clear enunciation of the law by Pennycuick, J. in Jermyn Street Turkish Baths Ltd. [1970] 3 All E.R. 57, the Court held that having regard to the scheme and purpose of sections 397 and 398 the reasoning on a pari materia provision of the English Act would be a valuable guide. It was observed "The said construction, appeals to us, to further the purpose intended to be fulfilled by petitions under sections 397 and 398 of the Act. It facilitates solution of problems in case of oppression of the minorities when the member is dead and his heirs or legal representatives are yet to be substituted. This is an equitable and just constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder and a member was not alien to the Act. 68. From the authorities cited at the bar, it is quite apparent that under the Companies Act, the words member , shareholder and holder of a share are used as synonyms, but the question arises as to whether in the context of the provisions of the 1994 Regulations having regard to its scheme and objective, the term holder of a share should be given the same meaning as in the Act, meaning thereby that it must be construed as restricted to those whose names appear in the register of members. In Howrah Trading s case ( supra ), the Court held that there was no reason to give to the term a different meaning under the Act than the meaning assigned to it under the Act. In Balkrishna Gupta s case ( supra ), it held that the right to vote was not affected by a pledge of the shares or the receiver being appointed in respect thereof. In Worldwide Agencies P. Ltd. s case ( supra ), however, the Court clearly held that a member may be a holder but a holder may not be a member of the company. It is, therefore, possible to give to the words who holds shares a meaning different than the one assigned to it under the Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etely defeat the provisions of the regulations as it would permit a person who does not hold shares in the company to acquire substantial shares in a company without having to give a public notice, and without making an offer as contemplated by the regulations. In sum and substance, an acquirer not holding shares in the company will not be bound by the regulatory provisions of the Regulations, nor by the prohibitions and mandatory requirements thereof. 70. We shall now consider the judgment in Fascinating Leasing Finance P. Ltd. ( supra ) on which considerable reliance has been placed by Mr. Chidambaram. It is no doubt true that the Tribunal took the view as canvassed by Mr. Chidambaram before us, and for the same reasons. But as submitted by Mr. Nariman, this decision completely overlooks the law as laid down in World Wide Agencies P. Ltd. s case ( supra ). In this context, he also relied upon a judgment of the Calcutta High Court in the case of Kedarnath Agarwal s case ( supra ). In any event, he submitted that fascinating leasing is a case of a one shot acquisition by negotiations (under regulation 9) under MOU and not by a series of purchases in the open market. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the express provisions in Regulation 3( d ) of the 1994 Regulations. Regulation 10 has no application when shares of unlisted companies are acquired by virtue of regulation 3( d ). Defendant Nos. 3 to 5 not being listed companies, their acquisition did not attract regulation 10. He relied on the decision of the SEBI in the case of Sesa Goa ( supra ) which was affirmed by the appellate authority. Mr. Nariman, on the other hand, submitted that regulation 3( d ), no doubt, makes the provisions of Chapter III of the regulations inapplicable to acquisition of shares in companies whose shares are not listed on any Stock Exchange . He emphasised the words in companies and submitted that the words used are not through companies . According to him, if it was a simple transaction of take over of an unlisted company, regulation 10 may not be attracted, but in the facts of this case, since the defendants were acting in concert with each other, the complexion of the case changes, and it must be held that the acquisition of these companies in the manner they were acquired was also a part of the scheme designed by defendant Nos. 1 and 11 in concert with the other defendants to acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant No. 11. Since an acquirer by definition includes any person acting in concert with the acquirer, the acquisition by these three unlisted companies of the shares in Herbertsons Ltd., were in fact acquisition by the acquirers within the meaning of regulation 10. When two or more persons acquire shares in a company, acting in concert with each other, each one of them is an acquirer within the meaning of regulation 2( b ) of the 1994 Regulation. If this Court ultimately finds that the defendants were acting in concert with each other pursuant to a common plan to acquire substantial shares of Herbertsons Ltd., the acquisition of these unlisted companies by the defendant No. 11, at a later stage, would not help the defendants because the initial acquisition by the aforesaid three unlisted companies would itself be an acquisition of shares by an acquirer in breach of the prohibition contained in regulation 10. 75. So far as the judgment of the SEBI and the appellate authority in Sesa Goa is concerned, the facts of that case are distinguishable. The acquisition of Sesa Goa Co. Ltd., by Mitsui Co., Japan through Finsider International Co. Ltd., was alleged to be in violatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first time in the 1997 regulation which came into force on 28-2-1997. Regulations 2( d ), ( c ) and ( o ) specifically introduced the concept of indirect acquisition and control. The Regulations also did away with the requirement of an acquirer being an existing shareholder. According to him, the validity of acquisition of the defendant Nos. 3 to 5 has to be determined on the plain terms of the 1994 Regulations which were clearly inapplicable to the acquisition of the defendant Nos. 3 to 5. 77. As noticed earlier, Mr. Nariman also agrees that the provisions of the 1994 Regulations must be understood on their own, and in fact he went to the extent of submitting that the aid of a subsequent law cannot be taken for interpretating an earlier law. He, therefore, submitted that one need not look at the 1997 Regulations. Even without the aid of the 1997 Regulations, it must be held that under the 1994 Regulations, an acquirer need not be a registered shareholder, and a holder of shares on the basis of blank transfer with a right to get his name registered was included in that term. On the question of indirect acquisition and control, he submitted that in the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is required to be made in accordance with the Regulations. Regulation 20(1) provides that the public announcement shall be made only when the acquirer has any reason to believe that he shall be able to implement the offer. Regulation 21(2) further provides that a public offer shall be made to the remaining shareholders of the company to acquire from them an aggregate of the minimum 20 per cent of the total shares of that company. This is subject to regulation 21(4) which requires that the offer referred to above shall not result in the public shareholding being reduced to less than 20 per cent of the voting capital of the company. It was submitted that Vijay Mallya and the plaintiffs held 25.66 per cent shares in Herbertsons Ltd., in December 1994, while the defendant Nos. 2 and 6 to 10 held 25.97 per cent shares, making a total of 51.63 per cent. Imfa acquired 10.91 per cent shares which attracted regulation 10(1) according to the plaintiffs. Imfa was, therefore, required to make a public announcement. It was, therefore, submitted that the promoters and the defendant Nos. 2 and 6 to 10, holding 51.63 per cent shares and Imfa having acquired 10.91 per cent shares was left amongst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 have, acting in concert with the remaining defendants (except defendant No. 12), acquired substantial shares of Herbertsons Ltd., defendant No. 12, in breach of the regulations. In paragraph 4 of the plaint, the plaintiffs have separately alleged in respect of each of the defendant Nos. 2, 3, 4, 5, 7 and 8 that they have acted in concert with the remaining the defendants except the defendant No.12 to acquire substantial shares in Herbertsons Ltd., from the open market without making a public announcement in accordance with the regulations. The said acquisitions were made with the common objective and purpose of substantial acquisition of shares and voting rights in order to gain control over Herbertsons Ltd., by co-operating on the basis of an understanding/agreement to gain such control. 82. Mr. Chidambaram submitted that the regulation 2(1)( b ) defines an acquirer to mean any person who acquires or agrees to acquire shares in a company either by himself or with any person acting in concert with the acquirer . According to him, the use of the word with means that the acquisition has to be made both by the acquirer and the person acting in concert with him, that is to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of any allegation in the plaint that the persons named therein had acted in concert to acquire the shares during the transaction period, the allegation falls to the ground. 83. Mr. Chidambaram further argued that it was wrong to allege that the method adopted by the defendants to acquire shares of Herbertsons Ltd., defendant No. 2, was a device, a mere pretence to defeat the law. In fact, the transactions were transparent, and funds were advanced to investment companies after obtaining expert advice. Since those companies failed to repay the loans, those companies were taken over. He referred to the declaration filed by the defendant No. 11 on 17-4-1997 and the note submitted by him to the SEBI dated 22-7-1997, giving a clear picture about the transactions which depicted transparent honest transactions of purchase of shares by the investment companies. He submitted that the initial acquisition of about 26 per cent shares by defendant Nos. 2, 6, 7, 8, 9 and 10 on 14-12-1993, before the 1994 regulations came into force, were the shares of the defendant No. 1 and not of the defendant No. 11. If this position is accepted, regulation 10(2) is not attracted, and if at all, the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our transactions which took place between 27-10-1994 and 30-10-1994 were made before the 1994 Regulations came into force. Thereafter, purchases up to 3-5-1995 brought the shareholding by Imfa in Herbertsons Ltd., to the 5.56 per cent mark (up to 9th transaction). The transactions between 4-5-1995 and 16-11-1995 brought the shareholding of Imfa in Herbertsons Ltd., to a little over 10 per cent mark. Thereafter, there were only three transactions between 17-11-1995 and 21-11-1995. He further submitted that the Board of Herbertsons Ltd., was not mislead by the statement that the purchase of shares by Imfa were by way of investment. In fact, Herbertsons Ltd., refused registration of shares on the 3-1-1996 but allowed application for transfer later on 30-5-1996. Moreover, there is nothing in the declaration of the defendant No. 11, filed under regulation 8(2) of the 1997 Regulations, to show that he was acting in concert with anyone. He, therefore, submitted that the acquisition of shares of Herbertsons Ltd., was made in normal course and the defendant Nos. 3, 4 and 5 purchased the shares of Herbertsons Ltd., as investment companies, and in doing so, did not act in concert either wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it must be held that they have acted in concert to acquire the shares, and in view of the definition of acquirer in the 1994 Regulations, both are considered to be acquirers. It does not matter who is shown as the purchaser of the shares. 87. The fact that in the plaint, the plaintiffs had not given the exact date/dates of acquisition of shares by the defendant Nos. 3, 4 and 5 is of no consequence. The shares were purchased by defendant Nos. 3, 4 and 5 companies and the plaintiffs really had no knowledge of those transactions. It was only when the shares were lodged for registration of transfer and several articles appeared in the newspapers, that the plaintiffs came to know about the acquisition of shares by the defendant Nos. 3, 4 and 5. The dates given by them in the plaint are approximate dates. In fact, the defendant No. 11 in his affidavit disclosed the details of those transactions. The plaintiffs had no means of finding out the accurate details of those transactions. In any event, they rely on the averments made by the defendant No. 11 in his affidavit in reply, and do not challenge any statement of fact made by the defendant No. 11 in his aforesaid affidavit regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to prove that they actually exercised controlling interest. It is the holding in the aggregate of a majority of the shares issued by a person or persons acting in concert in relation to the affairs of the company which establishes the existence of a block. It is sufficient, if having regard to their relation etc., their conduct, and their common interest, that it may be inferred that they must be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon. (15) It was for the Tribunal to determine, having regard to ordinary human experience whether it may be safely taken that the members of the Kedia family must have acted together as a controlling block. That enquiry has not been made, and the case has been decided on the application of a test which is erroneous. We are, therefore, unable on the statement of case to answer the question referred." (p. 772) He, therefore, submitted that the question as to whether two or more persons have acted in concert has to be considered having regard to their relation etc., their conduct and their common interest, and on the basis of such evidence, one may infer that they must have acted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honestly without resorting to subterfuges." (p. 662) Mr. Nariman also relied upon the observations in Moti Chand v. Ikram Ullah Khan AIR 1916 PC 59, wherein it was observed: "It appears to their Lordships that it cannot be doubted that the policy of Act No. II of 1901 is to secure and preserve to a proprietor whose proprietary rights in a mahal or in any portion of it are transferred otherwise than by gift or by exchange between co-sharers in the mahal a right of occupancy in his sir lands, and in the land which he has cultivated continuously for twelve years at the date of the transfer, and that such right of occupancy is by the Act secured and preserved to the proprietor, who becomes by a transfer the ex-proprietor, whether he wishes it to be secured and preserved to him or not and notwithstanding any agreement to the contrary between him and the transferee. The policy of the Act is not to be defeated by any ingenious devices, arrangements, or agreements between a vendor and a vendee for the relinquishment by a vendor of his sir land or land which he has cultivate continuously for twelve years at the date of the transfer: for a reduction of purchase money on the vend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs who held 80 per cent of the equity capital of the company. M.D. Chhabria, the defendant No. 11 and his wife Mrs. L.M. Chhabria held the remaining 20 per cent. Obviously, therefore, the entire share capital of Galan Finvest P. Ltd., was owned by the defendant No. 1 and his family members together with defendant No. 11 and his wife. Initially, they held shares in the proportion of 80:20 but it is also not disputed that on 22-11-1996, the wife of the defendant No. 11 acquired 30 per cent holding of K.R. Chhabria, the defendant No. 1 in the capital of the company. Thereafter, K.R. Chhabria s family members and M.D. Chhabria and his wife held 50 per cent shares each in the ultimate holding company, viz., Galan Finvest P. Ltd. The acquisition of shares by the defendant No. 1 through the six companies under his control aggregating 27.21 per cent of the paid up capital of Herbertsons Ltd., has not been questioned in the suit. The fact, however, that the holding company of all these six companies was Galan Finvest P. Ltd., in which the two major shareholders were defendant Nos. 1 and 11 and their family members is significant. It cannot be said that the defendant No. 11 did not have kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through and in the name of Imfa Holdings P. Ltd., were provided by the defendant Nos. 1 and 11 commencing from 21-11-1994. Relying upon the balance sheet of Imfa Holdings P. Ltd., for the year 1994-95, as on 31-3-1995, it was submitted by him that a sum of Rs. 1.31 crores was received between 21-11-1994 and 31-3-1995 from the companies under the control of the defendant No. 1 viz., the defendant Nos. 2, 6, 7, 8, 9 and 10 apart from Standard Distilleries Breweries P. Ltd., a company owned and controlled by M.D. Chhabria. (This is shown in the copy of the audited accounts of Imfa Holdings P. Ltd., enclosed with Imfa Holdings P. Ltd., letter dated 24-1-1996, addressed to SEBI). The auditors report has been signed by Mr. Ashok Kukreja, Chartered Accountant and auditor of Imfa Holdings P. Ltd. the defendant No. 3. 92. On the basis of these facts, Mr. Nariman submitted that Imfa Holdings P. Ltd., was almost a proprietary concern of Ram Raheja who was related to K.R. Chhabria, being his co-brother. The defendant Nos. 2 and 6 to 10 companies were companies of which Galan Finvest P. Ltd., was the ultimate holding company, and in the latter, at one stage, K.R. Chhabria, the defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4,00,200. The defendant No. 11, M.D. Chhabria, acquired the entire shareholding of Imfa Holdings P. Ltd., through Seven Star Investments Trading P. Ltd., on 29-7-1996, and thereby he got control over 10.91 per cent shareholding of Herbertsons Ltd. This was ostensibly on the ground that the erstwhile owners of Imfa Holdings P. Ltd., were unable to repay the loans, and agreed to sell away their shareholding in Imfa Holdings P. Ltd., to the companies of the defendant No. 11. These facts, therefore, establish the circumstance that 10,39,341 shares of Herbertsons Ltd., were acquired by Imfa Holdings P. Ltd., of which 99.95 per cent shareholding was of Ram Raheja, co-brother of the defendant No. 1. The funds for the acquisition of these shares were provided by the companies under the control of the defendant No. 1 and the defendant No. 11. Another circumstance which is equally evident is that Imfa Holdings P. Ltd., had a share capital of only Rs. 4,00,200, and did not have the means to acquire such large number of shares of Herbertsons Ltd. 93. The next transaction relates to acquisition of shares by the defendant No. 4, Mahameru Trading Co. P. Ltd. Between 14-11-1995 and 10-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan, it was taken over by a private limited company under the control of the defendant No. 11. Even Mahameru Trading Co. P. Ltd., the defendant No. 4, did not have the capacity to invest such a huge amount in the shares of Herbertsons Ltd., it being a company with a share capital of Rs. 200 only. 95. Between 27-8-1996 and 14-12-1997, 3,64,750 shares of Herbertsons Ltd., were acquired in the name of Shirish Finance Investment P. Ltd., the defendant No. 5. This company, again, had a share capital of Rs. 200 only, which was held by S.J. Chhabria and his wife. Though not related within the meaning of section 6, the said S.J. Chhabria is a cousin of the defendant No. 1 and nephew of the defendant No. 11. He was also a director in defendant Nos. 2, 6, 7 and 10 companies apart from other companies under the control of the defendant No. 1. A sum of Rs. 1.35 crores was made available to defendant No. 5 as interest-free loan through a Company owned and controlled by the defendant No. 11. On 13-2-1997, a further sum of Rs. 5 lakhs was made available by the defendant No. 11 through one of his companies. On 18-2-1997, the erstwhile owners of the defendant No. 5 being unable to repay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re directors and/or nominee shareholders of and in defendants 2 and 6 to 10 and/or their intermediate holding companies which companies are also admittedly described as K.R. Chhabria s companies; ( ii )substantial sums of money in excess of Rs. 9 crores in the aggregate were advanced by K.R. Chhabria/M.D. Chhabria to these three companies (defendants 3, 4 and 5) interest free without any stipulation as to date for repayment and without any tangible security, and were utilised for the purpose of acquiring only the shares of the listed company, Herbertsons Ltd.; ( iii )the shares of Herbertsons Ltd., having been acquired, the shares of these acquiring companies (having negligible share capital) were sold to/ taken over by M.D. Chhabria directly or in the name of his company Seven Star Investment Trading P. Ltd.; significantly the ostensible reason in each of the three cases of taking over of the shares was that these companies were allegedly unable to repay the moneys advanced to them and utilised for acquiring the shares of Herbertsons Ltd.; ( iv )that admittedly, in the case of Mahameru Trading Co. P. Ltd., (defendant No. 4) and Shirish Finance Investment P. Ltd. (defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recover the entire loan. Significantly, although M.D. Chhabria allegedly suffered a loss of Rs. 78 lakhs in value, but he admits that after taking over Imfa Holdings P. Ltd., in settlement of his demand on account of the funds advanced by him, the promissory notes earlier executed by Ram Raheja were cancelled and returned. Similarly, in the case of Mahameru Trading Co. P. Ltd. ( supra ) the lowest official quoted price on 13-2-1997 (the date of the take over) was Rs. 82 per share. If the shares purchased by the defendant No. 4 were sold on that date, the defendant No. 4 would have realised a sum of approximately Rs. 3.88 crores as against the loan amount of Rs. 2.8 crores giving a profit to the defendant No. 11 of approximately Rs. 1 crore, which works out to a return of approximately 36 per cent on alleged interest-free loan. In the case of Shirish Finance Investment P. Ltd., the lowest official quoted price of Herbertsons Ltd., on the Bombay Stock Exchange on 18-2-1997 (the date of take over) was Rs. 78 per share, and if sold, the shares would have realised approximately Rs. 2.8 crores as against the loan amount of Rs. 1.35 crores, giving a profit to the defendant No. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations, the moment it is found that he was acting in concert with the defendant No. 11, it must be held that the concerted action was of an acquirer holding more than 10 per cent shares in the capital of the target company. Mr. Nariman is, therefore, right submitting that in the facts of this case, regulation 10(2) was attracted. The course adopted by the defendant Nos. 1 and 11 leaves no room for doubt that they were acting in concert, and through unlisted companies, who hardly had a share capital base, and which were managed by persons related to known to them. They provided funds to those companies to acquire the shares of Herbertsons Ltd., and in all three cases, the companies were unable to repay the loans and, therefore, the defendant No. 11 took over those companies. The identical nature of transactions and the events that followed, prima facie established that the defendant Nos. 1 and 11 along with the defendant Nos. 3, 4 and 5 were acting pursuant to a plan and that the similarity of events was not accidental. Funds were advanced to all the three companies for the purchase of shares of Herbertsons Ltd., and all the three companies failed to repay with the result tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant No. 11. Surprisingly, they refused to register the shares lodged by Shirish whereas later, Herbertsons Ltd., registered 250 shares of Imfa and 850 shares of Mahameru on 26-8-1997. The submission of Mr. Chidambaram is that if these three companies were the vehicles of M.D. Chhabria, defendant No. 11, Herbertsons Ltd., would not have acted in the manner it did. This, again, is a question which cannot be answered at this stage because these are question which have to be answered by Herbertsons Ltd., the defendant No. 12, and not by the plaintiffs. These and other submissions urged by Mr. Chidambaram cannot be considered at this stage when there is no evidence on record, and the defendants are yet to file their written statement, and thereafter the parties may produce evidence in support of their respective cases. 99. Mr. Chidambaram submitted that the plaintiffs have erred on facts in submitting that the loans were interest-free loans. Reliance is placed on the reports of Mr. A.T. Kukreja and Arup Mitra Co., qualified Chartered Accountants. It was argued that the professionally qualified Chartered Accountants had prepared two schemes, one of which was accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have substantial assets. He, therefore, submitted that the transaction was transparent, and there was no evidence on record to conclude or suspect even remotely that the acquisition of the defendant Nos. 3 to 5 companies were not real, or not on their own behalf and that they were actually acting in concert with anyone when the acquisition of shares took place. 101. We are not impressed by the submission urged by Mr. Chidambaram. We have earlier held that much value cannot be attached to the reports of the professional experts who also cannot be characterised as independent persons, in view of their association with other companies of defendant No. 11. Moreover, the FCDs were never issued, and even the promissory notes were cancelled and returned after take over of the companies. The facts on record to prima facie establish that the three companies, the defendant Nos. 3, 4 and 5 made substantial investments in the shares of Herbertsons on the strength of the funds advanced to them by the companies under the control of the defendant No. 1 and the defendant No. 11. It is premature at this stage to speculate as to the source from which they procured further funds to purchase th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made, but this course was deflected on extraneous consideration, and ultimately, the SEBI took recourse to issuance of show-cause notice dated 8-1-1999. This argument was also advanced before the trial Judge but the submission was not accepted inasmuch as there was neither any authenticated document to support these facts nor could this question be considered in the absence of the SEBI or its Chairman or the former Chairman of the Committee at whose behest it was submitted that the SEBI changed its decision. The learned Judge also found that the document, Annexure O was an unsigned, unauthenticated document and did not come from proper custody. He, therefore, refused to look at the document which was not duly authenticated. In any event, this question need not detain us because the SEBI is not a party in the suit. That apart, we should not make any observation in this order which may even remotely touch upon matters within the jurisdiction of the SEBI. What appropriate the order SEBI may pass in a case of this nature must be left to the SEBI, and we, therefore, do not consider it appropriate to make any observations. 103. Before adverting to the other submissions urged on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this theory is that made by Lord Denman in R. v. Bolton [1841] 1 QB 66. He said that the question of jurisdiction is determinable at the commencement, not at the conclusion of the enquiry..." (p. 2384) He also relied upon a decision rendered by a Division Bench of this Court in Sadguna Chimanlal Shah v. New Sagar Darshan Co-operative Housing Society Ltd. [1980] Mh. LJ 203, which has considered section 9A as amended by the Maharashtra Amending Act 25 of 1970. The Court held that the issue as to jurisdiction must be decided as a preliminary issue while granting an interim relief. The amendment directs that if an objection is raised as to the jurisdiction of a Court at the stage of granting of interim relief, the Court shall proceed to determine, at the hearing of such application, the issue as to jurisdiction as a preliminary issue before granting or setting aside the order granting interim relief. Such an application is not to be adjourned to the hearing of the suit. The provisions of the Maharashtra Amendment Act were imperative and nobody has a choice to conduct the proceedings in the suit contrary to the directions of the Legislature. In Meher Singh v. Deepak Sawhny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly by the Court. The determination of the said issue is not only for the limited purpose of granting interim relief or vacating interim relief. It is true that this procedure requires piecemeal determination of the suit, but that cannot be avoided becuase of the mandate of section 9A." It was concluded that section 9A was added with a specific object to see that objection with regard to jurisdiction of the Court is decided as a preliminary issue. The practice of granting injunctions, without going into the question of jurisdiction even though raised, had led to grave abuse. Hence, the said section is added to see that the issue of jurisdiction is to be decided as a preliminary issue notwithstanding anything contained in the Code of Civil Procedure, including Order XIV Rule 2. Once this is to be decided by raising it as a preliminary issue, it is required to be determined after proper adjudication, and adjudication would require giving of opportunity to the parties to lead evidence, if required. Relying upon these decisions, Mr. Nariman submitted that any point taken to non-suit the Plaintiffs at the threshold, amounts to raising a question of jurisdiction. In the grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( supra ) it was emphasised that there is an essential distinction between the question of jurisdiction of the Court to entertain a suit and the rule of law which precludes a man from avowing the same thing in successive litigations. There is also a marked difference between inherent want of jurisdiction to entertain a matter and the regular exercise of jurisdiction. In Panthalakunnummal Pokkutty s case ( supra ) it was observed that there is an essential difference between inherent want of jurisdiction in a Court to entertain a cause and the irregular exercise of it. Their lordships referred to the judgment of the Calcutta High Court in Sukh Lal v. Tara Chand 33 Cal. 68, in which it was observed that jurisdiction may be defined to be the power of a Court to hear and determine a cause, to adjudicate or exercise any judicial power in relation to it. The judgment also quoted, with approval, the observations of the Calcutta High Court in Hriday Nath v. Ram Chandra AIR 1921 Cal. 34, that there is a fundamental distinction between existence of jurisdiction and exercise of jurisdiction. In Union of India s case ( supra ), the Apex Court referring to its earlier judgment in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinction between inherent lack of jurisdiction, and the error in exercise of jurisdiction. In the context of section 9A, as amended in its application to the State of Maharashtra, it is in the former sense that the question of jurisdiction must be viewed. The section insists that if any interim relief is asked for, and the question of jurisdiction is raised, then the issue of jurisdiction must be tried. It emphasizes the fact that the issue must be determined at the commencement and not at the conclusion of the enquiry, as was emphasised by Lord Denman in Bolton ( supra ). Mr. Nariman is, therefore, right in submitting that in view of the defendants contention that the Court had no jurisdiction to deal with any matter relating to the violation of the SEBI Regulations since that jurisdiction exclusively vested in the SEBI, and that questions relating to rectification of register of members could be determined only by the CLB which was vested with jurisdiction, the plea amounted to a plea that the Court had no jurisdiction even to enter upon the enquiry, i.e., there was a threshold bar. Once the Defendants raised this objection on the question of jurisdiction, in view of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignificant change after the decision of the Supreme Court in Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers P. Ltd. AIR 1998 SC 3153 1 . According to the defendants, section 155 vests jurisdiction in the company Judge, and impliedly ousted the jurisdiction of the civil court in respect of rectification. All matters related to or connected with rectification can be adjudicated by the company court hearing a rectification application. However, if the company Judge hearing the matter feels that the matter involved complicated questions of fact, he could direct the parties to have it adjudicated in a civil court. Having regard to the law as laid down in Ammonia Supplies Corpn. a party seeking rectification either under section 111 in respect of a private limited company or under section 111A in respect of a public limited company must move the CLB if it falls under the five specified categories. Thereafter, if the CLB is satisfied that there are complicated question of fact, it may direct the party to seek reliefs in a civil court. A shareholder as a member of a public limited company has no right either under the common law or under any statute to ask for rectifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we may refer to two decisions of the Supreme Court which have clarified the matter further. In Raja Ram Kumar Bhargava v. Union of India AIR 1988 SC 752, after referring to the authorities, the Court observed "...Generally speaking, the broad guiding considerations are that wherever a right, not pre-existing in common-law, is created by a statute and that statute itself provided a machinery for the enforcement of the right, both the right and the remedy having been created uno flatu and a finality is intended to the result of the statutory proceedings, then, even in the absence of an exclusionary provision the civil court s jurisdiction is impliedly barred. If, however, a right pre-existing in common law is recognised by the statute and a new statutory remedy for its enforcement provided, without expressly excluding the civil court s jurisdiction, then both the common-law and the statutory remedies might become concurrent remedies leaving open an element of election to the persons of inherence. To what extent, and on what areas and under what circumstances and conditions, the civil court s jurisdiction is preserved even where there is an express clause excluding their juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te purports to curb or curtail a pre-existing common law right and purports to oust the jurisdiction of the Court, the Courts have to further examine the question as to whether an adequate redressal machinery has been provided before which the person aggrieved may agitate his grievance. 113. We shall now consider the authorities cited by Mr. Nariman in support of the proposition that a shareholder had a common law right to seek rectification of the register of members. In T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd. Ors. AIR 1928 Mad. 571, the plaintiff had filed a suit for rectification of the register since the defendant-company refused to register his shares in his name. An objection was raised by the company that the plaintiff was not entitled to enforce his right by a suit. After noticing section 38 of the Companies Act of 1913, which provided for an application for rectification of the register of companies, whenever the name of any person was fraudulently or without sufficient cause entered in or omitted from the Register. Their lordships referred to the judgment in the case of Manilal Brijlal Shah v. Gordhan Spg. Mfg. [1920] 47 Cal. 901 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 432 (Bom.), the contention that only a person aggrieved by an incorrect or wrong entry in the share register was entitled to file a rectification application under section 155, was repelled by a Division Bench of this Court (per Sawant, J. as he then was), and it was held that any member was entitled to apply for rectification under section 155 without being compelled to show that he was aggrieved, or any prejudice was caused to him. In Jayshree Shantaram Venkudre v. Rajkamal Kalamandir P. Ltd. [1960] 30 Comp. Cas. 141, the petitioner was a shareholder in respect of 251 ordinary shares of the respondent No. 1 company but by a deed of transfer dated 28-6-1955, signed by her, she purported to transfer those shares, and accordingly, the shares were transferred and registered in the name of the respondent No. 2. It appears that later, some disputes arose between the petitioner and her husband, and the petitioner denied having at any time executed a deed of transfer of the kind which was annexed as Exhibit 2 to the affidavit in reply made on behalf of the respondent No. 1 company. Her case was that the contents of the deed of transfer which bore her signature were forged and fabr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. He further noticed the judgment of the Madras High Court in T.A.K. Mohideen Pichai Taraganar s case ( supra ) that the true and correct view to take would be that the Companies Act merely legislative for or regulated rights recognised under the common law. After a full consideration of the matter, the learned Judge concluded "In my view, every shareholder of a company has an individual right and interest in seeing that the share register of the company reflects the true position. Upon the share register rests each shareholder s right to receive his due share of the company s profits by way of dividend, his right to exercise his vote and to have it correctly assessed as against the votes of other rightful shareholders, and his right to acquire new shares in the company pro rata with other rightful shareholders. An entry in the register which is bad or illegal affects these rights of the individual shareholder. He is thereby prejudiced and aggrieved. The right to rectify was recognised as common law and was translated into the statutes, English and Indian. (The provisions of section 116 of the English Companies Act, 1948, provide to any member of the company the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly re-enacted as the Companies Act, 1967, 1976, 1980, 1981) and the European Companies Act, 1972, came to be enacted. The series of Acts only show that the law of contract which was the basis of the deed of settlement company was regulated by a statue at various stages. It is, therefore, clear that the position in law is that the rights and liabilities between the contracting parties and governed by the articles of association are regulated by the various statutes relating to company law, and these laws have not created any special rights and remedies." Reference was then made to T.A.K. Mohideen Pichai Taraganar s case ( supra ), and his Lordship recorded his conclusion in the following words:- "I, therefore, hold that the general law of contracts is the basis of the rights of parties and that the Companies Act, 1956, merely regulates these rights and does not create any new rights or remedies. Unless, as stated in Wolverhampton s case [1859] 6 CB (NS) 336, there is an exclusion of the jurisdiction of the civil court, by words express or implied, the suit is maintainable, and no such exclusion has been held existing by the courts in respect of individual rights." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. s case ( supra ), and speaking for the Court (Y.K. Sabharwal, J. as he then was) observed "The object of section 155, in our view, is to provide remedy in non-controversial matters or in matters where a quick decision is necessary and can be rendered in order to obviate irreparable injury to a party. Section 155 each ordinarily not intended for settling controversies necessitating a regular investigation and in such cases, the Company Court can decline to entertain petitions in exercise of its discretionary power and say that since serious disputes are involved, the proper forum for their adjudication is a civil court. Section 155(3) only shows that question relating to title can also be examined by the Company Court but that is also possible without detailed examination of complicated questions of fact and law, requiring extensive oral and documentary evidence and it cannot be inferred from section 155(3) that the remedy is not summary. It would depend on facts of each case. It is not necessary in every case where the question relating to title may be involved that there has to be a detailed examination and determination of oral and documentary evidence. The question i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra ) was decided, Ammonia Supplies Corporation (P.) Ltd. s case ( supra ), makes a departure and the law has undergone a change. We may, at the outset, notice that the earlier judgment in Public Passenger Services Ltd. s case ( supra ), was considered in Ammonia Supplies Corporation (P.) Ltd. s case ( supra ) and the same has not been overruled. We are of the view that the law as laid down in Public Passenger Services Ltd. s case ( supra ) has been re-affirmed with certain clarifications. The law as understood by the Full Bench of the Delhi High Court pertaining to the jurisdiction of the court under section 155, has also been approved. The contention feebly urged that the judgment in Public Passenger Services Ltd. s case ( supra ), was per incuriam has also been rejected. The question is whether despite all this, Ammonia Supplies Corporation (P.) Ltd. s case ( supra ) lays down a law different than what was laid down in Public Passenger Services Ltd. s case ( supra ). 118. In Ammonia Supplies Corporation (P.) Ltd. s case ( supra ) the Court considered the definition of Court under section 2( ii ) of the Companies Act, and came to the conclusion that in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omitted or wrongly recorded in the register of the Company...." (p. 3161) The Court also observed "Sub-section (1)( a ) of section 155 refers to a case where the name of any person without sufficient cause entered or omitted in the Register of Members of a Company. The word sufficient cause is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the Court has to exercise its jurisdiction. It cannot be doubted in spite of exclusiveness to decide all matter pertaining to the rectification it has to act within the said four corners and adjudication of such matter cannot be doubted to be summary in nature. So, whenever a question is raised Court has to adjudicate on the facts and circumstances of each case. If it truly is rectification all matters raised in that connection should be decided by the Court under section 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely changed, because after the amendment, the power to rectify the register vests in the Company Law Board, which unlike a Court is not exclusively defined. Therefore, to what is taken out from the provision of section 111 from Courts jurisdiction, and vested in the Company Law Board, exclusivly will not attach. 120. On a careful reading of the judgment of the Supreme Court, it is apparent that the Court held that the jurisdiction exercised by the Court under section 155 is a summary jurisdiction. The Company Court is invested with exclusive jurisdiction in regard to questions raised within the peripheral field of rectification. However, if the claim is based on some seriously disputed civil right or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member, and if the Court feels such claim does not constitute to be a rectification but instead seeking adjudication of basic pillar, some such facts falling outside rectification, its discretion to sent the party to seek its relief before a Civil Court first for the adjudication of such facts has not been taken away from the Court. The Court, therefore, has to find whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etely barred. 121. In Dr. V.L. Pahade v. Vinay L. Deshpande [1999] 97 Comp. Cas. 889 1 , a Division Bench of the Andhra Pradesh High Court has taken a similar view after considering the judgment of the Supreme Court in Ammonia Supplies Corporation (P.) Ltd. s case ( supra ). A learned Judge of this Court has also taken the same view in National Insurance Co. Ltd. v. Glaxo India Ltd. [1999] 20 SCL 243 / 98 Comp. Cas. 378 (Bom.). 122. In the instant case, the application for rectification proceeds on the basis that the acquisition of shares by defendant Nos. 3 and 4 were illegal and void being in breach of the mandatory provisions of the 1994 Regulations. This was not a case where rectification was sought on the ground that the application for transfer was not properly made or duly stamped or that the name of the transferor did not appear in the share register or that any other formality had not been complied with, but on the ground that defendant Nos. 3 and 4 had acquired no title to the shares in view of the breach of the 1994 Regulations. In a case of this nature, the Court exercising jurisdiction under section 155 of the Companies Act, 1956 will have to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain any appeal against the impugned order of the Tribunal. It was argued on behalf of the appellant that the Civil Court had jurisdiction to decide the scope of the powers of the Tribunal under the Act, and in case the Tribunal has wrongly refused to exercise jurisdiction under the Act, then the Court was competent to set it right and direct the Tribunal to entertain such application and to decide the same on merits. The Tribunal being a statutory authority, the Court had jurisdiction to decide the parameters, scope, authority and jurisdiction of the Tribunal. It is the judiciary, i.e., the courts alone that have the function of determining authoritatively the meaning of a statutory enactment and to lay down the frontiers of jurisdiction of any body or Tribunal constituted under the statute. The Court, after noticing the observation of Francis Bennion in his book Statutory Interpretation , and the observations of the Court in Sanjeev Coke Manufacturing Co. v. Bharat Coking Coal Ltd. [1983] 1 SCC 147 and Kehar Singh v. Union of India [1989] 1 SCC 204, upheld the contention of the appellant and held that the Supreme Court was the ultimate interpreter of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission urged on behalf of the Plaintiffs was that, in any event, after the insertion of section 111A in the Companies Act, 1956 the common law right, if any, was taken away by the statute from the members in respect of the shares in which such members had no interest. The right to apply for rectification now being a statutory right could be exercised only in accordance with the provisions of section 111A. Mr. Chidambaram took us through the provisions of the Companies Act as they existed from time to time, and submitted that before 1985, under section 111, both the transferor and the transferee could appeal to the Central Government against any refusal of the company to register a transfer. Under section 155, as it then stood, any person aggrieved or any member of the company or the company itself could apply to the Court for rectification of the register of members if the name of any person was without sufficient cause entered in the Register of Members or after having been entered in the Register, was without sufficient cause, omitted there from. Section 111, therefore, dealt with transfer of shares while section 155 dealt with rectification of register of members. 126. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-section (2) provides that the shares or debentures and any interest therein of a company shall be freely transferable. Sub-section (3) lays down that the Company Law Board may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, after such enquiry as it thinks fit, direct any depository to rectify its register or records if the transfer of the shares or debentures is in contravention of any of the provisions of the SEBI Act, 1992 or Regulations made there under or the Sick Industrial Companies (Special Provisions) Act, 1985. Sub-section (4) authorises the Company Law Board to suspend the voting rights before making or completing such enquiry under sub-section (3). However, sub-section (5) clarifies that the right of a holder of shares or debentures to transfer such shares or debentures is not restricted and any person acquiring such transfers or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. Sub-section (6) permits further transfer of shares, debentures, etc., during the pendency of the application with the Company Law Board, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992), or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, 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 the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records. ( 4 ) The Company Law Board while acting under sub-section (3), may at its discretion make such interim orders as to suspend the voting rights before making or completing such enquiry. ( 5 ) 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. ( 6 ) Notwithstanding anything contained in this section, any further transfer, during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t advanced by Mr. Chidambaram that the words without sufficient cause in proviso to sub-section (2) should be given such a restricted meaning. It is worth noticing that before 15-1-1997, under section 111A, there was no provision which gave a right to the transferee to move the Company Law Board against refusal of a company to transfer shares lodged by him. To fill up this lacuna, a proviso was added to sub-section (2). Similarly, before its amendment on 15-1-1997, under section 111A, rectification could not be claimed by anyone on the ground that the transfer was in breach of any other law for the time being in force , and was limited to cases where breach of two Acts mentioned therein was complained of. The concept of free transferability is not a new concept. However, before a transfer may be registered by a company, the company has to satisfy itself that all the legal requirements are fulfilled. No doubt, the company had to examine whether the formalities required have been fulfilled such as signatures, stamp, etc. But it cannot be said that without sufficient cause must be confined to such things only. We fail to understand why a company cannot refuse to register a transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 155 of the Companies Act, 1956 as also from section 111 relating to Private Companies, under which the members of the company could apply for rectification. Section 111A, as amended, takes away that right and confers the right to claim rectification only on five specified categories of persons. He, therefore, submitted that the Plaintiffs did not have a right to claim rectification of register of members. 134. Mr. Nariman submitted that even if it is so, and a member of a Company cannot make an application under section 111A of the Companies Act to seek rectification of register of members, it would not, ipso facto , follow that his right to claim such a relief by way of suit is also defeated. Since a member had a right in common law based on contract to claim rectification of register of members, that right has only been regulated by the provisions of the Companies Act, as amended from time to time. There is nothing in section 111A which expressly or by necessary implication takes away his common law right. In fact, it supports his submission that since there is no adequate remedy provided to a member of a company under section 111A for rectification of register of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members be rectified. The principal relief was to declare the transactions void and as a consequence, rectification was claimed. He submitted that even though a declaratory suit is outside section 42 of the Specific Relief Act, it may, nonetheless, be maintainable under section 9 of the Code of Civil Procedure. Section 42 of the Specific Relief Act is not exhaustive. He referred to authorities which we shall notice hereinafter. 136. In Vemareddi Ramaraghava Reddy v. Konduru Seshu Reddy AIR 1967 SC 436, the Plaintiffs had brought a suit as a mere worshiper of a temple for a declaration that the provision in the compromise decree that the lands mentioned in the Schedule were the personal properties of defendant Nos. 1 to 5, and not the absolute properties of the temple, was not valid and binding on the temple. The suit was opposed on the ground that the Plaintiff had brought the suit as a mere worshiper, and that he had no legal or equitable right to the properties of the temple which constitute the subject-matter of the suit. It was contended that in a suit of this description, the conditions of section 42 of the Specific Relief Act were not specified, and the suit was, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, became also contractual and may be specifically enforced. 138. In Smt. Ganga Bai v. Vijay Kumar AIR 1974 SC 1126 the Apex Court emphasised the basic distinction between the right of suit and the right of appeal. It was held that there is an inherent right in every person to bring a suit of a civil nature, and unless the suit is barred by statute, one may, at one s peril, bring a suit of one s choice. It is no answer to a suit, howsoever frivolous the claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of law. That is to say, an appeal is a creature of statute. In PYX Granite Co. Ltd. v. Ministry of Housing Local Government the question before the House of Lords was whether the statutory remedy was the only remedy and the rights of the subject to have recourse to the courts of law was excluded. It was observed that the subject s recourse to Courts for the determination of his rights is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment of the statute. Mr. Nariman contended that in the instant case, the SEBI Regulations were intended to protect the interest of the shareholders and the Plaintiffs fall within that category. In Cutler v. Wandsworth Stadium Ltd. [1949] Vol. I, AER, 544, it was held "The other matter which I wish to deal concerns the penalties provided by the statute. If there is no penalty and no other special means of enforcement provided by the statute, it may be presumed that those who have an interest to enforce one of the statutory duties have an individual right of action. Otherwise, the duty might never be performed, but, if there is a penalty clause, the right to a civil action must be established by a consideration of the scope and purpose of the statute as a whole. The inference that there is a concurrent right of civil action is easily drawn when the predominant purpose is manifestly the protection of a class of workmen by imposing on their employers the duty of taking special measures to secure their safety. The penalties provided by the Act apply when a breach of the duty occurs, but each workman has a right to sue for damages if he is injured in consequence of the breach." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any other ground. For the breach of statutory Regulations, the consequences should be found within the law. There is no provision in the Regulations to declare an acquisition void if it were in contravention of the Regulations. In fact, when a suggestion was made by the Expert Committee to declare such transactions void, the recommendation was not accepted when the 1997 Regulations were framed. The consequence suggested would be inconsistent with the powers of SEBI under Regulation 39 of the 1994 Regulations and Regulation 44 of the 1997 Regulations and would be totally inconsistent with the powers conferred on SEBI by Regulation 44( b ) and ( c ) of the 1997 Regulations. He submitted that the contention of the Plaintiffs that in view of the use of negative mandatory language in the Regulations, the transactions would have to be considered void is erroneous in the absence of there being a consequential provision declaring the transaction void. The mere use of negative mandatory language would not itself make the transaction void. Furthermore, when there is power to exempt from penal provisions, the argument of voidness would no longer survive. He relied on State of Uttar Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent. In a given case, the prices of shares may have gone down steeply, and a re-transfer may be to the disadvantage of the seller. 144. Mr. Nariman, on the other hand, submitted that under section 15H of the SEBI Act, 1992, for failure to disclose the aggregate of the shareholding in the body corporate before acquiring any shares, and for failure to make a public announcement to acquire shares at a minimum price, a penalty not exceeding Rupees five lakhs may be imposed. Similarly, under section 24 of the Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of the Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both. This is without prejudice to any award of penalty by the adjudicating officer under the Act. Under regulation 39 of 1994 Regulations the Board is empowered to give such directions as it deems fit for all or any of the purposes enumerated therein. It may direct the persons concerned not to further deal in securities or prohibit the person concerned from disposing of any of the securities acquired in violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry words employed excluded title vesting in purchasers who have acquired shares in violation of the Regulations. He further submitted that so far as the decision in Bank of India Finance Ltd. s case ( supra ) is concerned, there was no reference to any provision similar to section 32 of the SEBI Act. That apart, he submitted that in the instant case, there was only one transaction which was void unlike the case of Bank of India Finance Ltd. s case ( supra ) where there were two transactions, one lawful and the other unlawful. The concept of ready leg and forward leg did not apply to the facts of this case. No doubt, the Plaintiffs claimed that the shares having been acquired in violation of the statutory regulations, the interest of shareholders was seriously and adversely affected, but further damage to their interest should not be caused by permitting the acquirers of such tainted shares to exercise their voting right. It was in this context that it was submitted that even though the holders of the shares may receive dividend till such time as the transactions were held to be void by the Court, in the interregnum, they should not be permitted to vote on the strength of such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all [1876] 2 QBD 199 at p.208, per Lush, J.], and when that result would involve general inconvenience or injustice to innocent persons, or advantage of those guilty of the neglect, without promoting the real aim and object of the enactment, such an intention is not to be attributed to the Legislature. The whole scope and purpose of the statute under consideration must be regarded. The general rule is, that an absolute enactment must be obeyed or fulfilled exactly, but it is sufficient if a directory enactment be obeyed or fulfilled substantially." (1424) Reliance was placed on the judgment in Manbodhan Lal s case ( supra ) wherein the Supreme Court had observed that no general rule can be laid down but the object of the statute must be looked at and even if the provision be worded in a mandatory form, if its neglect would work serious general inconvenience or injustice to person who have no control over those entrusted with the duty and at the same time would not promote the main object of the Legislature, it is to be treated only as directory and the neglect of it though punishable would not affect the validity of the acts done. Reliance was also placed on Bhikraj v. Unio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instance of the particeps criminis to relieve him from the legal effect of transaction. Reference was made to Ayerst v. Jenkins [1978] 16 Eq. Cases 275 which laid down the principle of equity which prevented the Court from giving aid to a person guilty of immoral conduct to recover the property on the ground of public policy. It was held that a Court of equity would not, at the instance of a settlor or his legal personal representative, adversely set aside a settlement by which the settlor confers on a stranger the absolute beneficial interest in property legally vested in trustees, although such a settlement may have been made for an illegal consideration not appearing on the face of the instrument. After noticing the said equitable principle. Their Lordships held that a person who made such a transfer for immoral consideration cannot claim back the property, having achieved his object by that transfer. An argument was advanced on the basis of section 6( h ) of the Transfer of Property Act that the transfer for such an object or consideration was ipso facto void and therefore the transferor can come to Court and ask its assistance in getting back the property. Their Lor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer of Property Act. An earlier judgment of this Court in Husseinali Casam Mohomed v. Dinbai AIR 1924 Bom. 135, which related to an agreement to pay certain amount for services rendered as a nurse but was in reality for past cohabitation, held that the consideration for the document being past cohabitation, it was unlawful as immoral or opposed to public policy. After considering the facts of the case, Their Lordships held that the object of the sale deed in the present case was future cohabitation, and might also be said to be a reward for past cohabitation. If the transfer is invalid, the person passing the document retains the title to himself. Their Lordships noticed the decision in Deivanayaga Padayachi s case ( supra ). Applying the rule in Ayerst s case ( supra ) it was held that the Plaintiff would be prevented from recovering the properties conveyed in the sale deed on the ground that the immoral object had been carried out by Sabu after the date of the sale deed. However, so far as the gift deed was concerned, Their Lordships held in the facts of the case that Sabu did not carry out the immoral object as he was incapable of carrying out it owing to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer without complying with the provisions of the Act is emphasised by the negative language. Negative language is worded to emphasis the insistence of compliance with the provisions of the Act. After noticing the authorities, it was held that negative words are clearly prohibitive and are ordinarily used as a legislative device to make a statutory provision imperative. The various tests for finding out when a provision is mandatory or directory are the purpose for which the provisions has been made, its nature, the intention of the Legislature in making the provision, the general inconvenience or injustice which may result to the person from reading the provision one way or the other, the relation of the particular provision to other provisions dealing with the same subject and the language of the provision. Prohibition and negative words can rarely be directory. Therefore, negative prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory. It was held "If anything is against law though it is not prohibited in the statute but only a penalty is annexed, the agreement is void. In every case where a statute inflicts a penalty for doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond leg, namely, the forward leg, would be void. Upholding the contentions of the Bank, the Court held "Section 57 applies to cases where two sets of promises are distinct. When the void part of an agreement can be properly separated from the rest, the latter does not become invalid. The ready-forward transaction consists of two parts. In the ready leg there is a purchase or sale of securities at a stated price which is executed on payment of consideration for the spot delivery of the security certificates together with transfer forms. The full and absolute ownership of the title insecurities vests in the purchaser, the entire property in the security passing immediately upon such delivery and payment. The seller is divested of all the rights, title and interests in the said securities. The forward leg is to be performed at a later date on the stated price being paid. The securities are to be delivered back when the title in interest therein would pass to the original seller. It is clear that such a ready-forward transaction consists of a set of reciprocal promises. The first set of promises were fully executed, but the second set remained executory. Section 57 of the Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public policy, the Courts will deny relief to such a Plaintiff who was a particeps criminis. In both cases, the agreements were sought to be avoided by the person who was a party to the agreement, or his legal representative. In Sambava Yellappa s case ( supra ) this Court refused to grant relief of recovery of possession of the properties sold under the sale deed on the ground that the immoral object had been carried out. However, relief was granted in respect of the properties covered by the deed of gift on a finding that the donor did not carry out the immoral object as he was incapable of carrying it out owing to his illness and died soon thereafter. These cases, therefore, do not lay down the proposition that an agreement with an immoral objective or which is opposed to public policy is not void if the transaction is a completed transaction. In fact, they proceed on the basis that they are void, yet the Court would not aid a person guilty of immoral conduct to recover the property on the ground of public policy. These were cases where the settlor or vendor, having executed the settlement/sale deed with an immoral object, sought to recover the properties after fulfilling t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to bring about transparency in transactions relating to securities and to safeguard the interest of the investors. The regulatory measures were designed to achieve these objectives. If the regulations relating to acquisition of shares in certain cases, are not treated as mandatory, and an acquirer is permitted to acquire substantial shares in any way he likes, and in breach of the Regulations, the entire scheme of the Act and the regulations will be defeated. The Board will be faced with a fait accompli, and the acquirer will reap the benefit of the illegal transactions. The take over bids instead of being open and transparent will be clandestine and secretive. The ordinary shareholder will have no participation in the public offer or announcement which are designed primarily to protect his interest, causing him grave injustice. Such being the consequences, and having regard to the negative form of the language, the mandatory character of the prohibition is strengthened. We are, therefore, of the view that the intentment of the Act and the regulations is to prohibit completely the acquisition of shares in breach of the Regulations, particularly regulations 9 and 10 thereof, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case is, therefore, on the same footing as the forward leg in Bank of India, and must, therefore, be held to be void. The submission has merit and must be accepted. Moreover, in Bank of India, the Supreme Court noticed the earlier judgments of the Court in Manbodhan Lal Srivastava and Bansari Das, which we have also considered earlier in our judgment and followed the principles laid down therein. The mere use of negative mandatory language is by itself not conclusive in determining whether a provision is mandatory or directory. The matter has to be viewed by taking into account several other considerations, and some of the tests that may be applied have been enumerated in Raza Buland Sugar Co. Ltd. s case ( supra ). Applying those tests as well, we find that the prohibitions contained in Regulations 9 and 10 of the 1994 Regulations are mandatory, and any acquisition made in breach thereof is rendered void. We are also not inclined to accept the very broad proposition that section 23 of the Contract Act applies only to executory contracts, and not to transfers concluded and acted upon in pursuance of such contract. Reliance placed upon the decision in Bank of India is misplaced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceeding was commenced. We, therefore, accept the submission urged by Mr. Chidambaram. 158. The next question for consideration is as to the effect of the repeal of the 1994 Regulations by the 1997 Regulations which came into effect from 20-2-1997. Mr. Ashok Desai, appearing for Respondent No. 1, submitted that assuming that the Regulations of 1994 were breached, the Regulations having been repealed, it must be treated as if it never existed. He further, submitted that the saving clause did not apply to the present case. There are substantial differences in the two Regulations and the repealing Regulations did not keep alive anything done or any action taken under the repealed Regulations. It is his submission that in fact no action had been initiated under the repealed Regulations nor was any action initiated under the repealing Regulations. There was, therefore, nothing for the Court to consider on the basis of the repealed Regulations. He submitted that on 9-10-1996, when the 1994 Regulations wherein force, SEBI issued a notice under section 24 of the Act to Ram Raheja, the Managing Director of Imfa. Ram Raheja informed the SEBI that he was no more in control of Imfa, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of these Regulations." Regulation 47, therefore, saves any action taken or purported to have been taken under the 1994 Regulations, and expressly includes any enquiry or investigation commenced or show-cause notice issued under the said Regulations. By a fiction, it was deemed that such action was taken, or anything done was deemed to have been done, or taken, under the corresponding provision of these Regulations. 160. Under the 1994 Regulations, the Board has a right to enquire and investigate, suo motu or upon complaints received for breach of the Regulations, and for this purpose, it may appoint an investigating authority and thereafter call upon the person concerned to offer his comments on the investigation report. Regulation 39 authorises the Board to give certain directions. It is, therefore, obvious that if Regulation 10 is breached, and it appears to the Board that the matter needs to be investigated, it may appoint an investigating authority and investigate the matter and thereafter pass orders in accordance with the Regulations. There is a similar scheme under the 1997 Regulations as contained in Chapter V. It would thus be apparent that both under the 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be deemed to have been made, issued, done or taken in exercise of the powers conferred by, or under this Act as if this Act had come into force on 3-3-1948. The Court held that anything done occurring in the section does not mean or include an act done by a person in contravention of the provisions of the Ordinance. What was kept alive were the rules, notifications or other official acts done in exercise of the powers conferred by or under the Ordinance and these powers are mentioned in several sections of the Act. It was held that the claim did not fall under section 11. Their Lordships, however, held that the proviso to section 4 of the Act clearly showed that the claim filed under the Ordinance would be treated as one filed under the Act with all the consequences attached thereto. After considering the provisions of the Act Their Lordships concluded that it was not the intention of the Legislature that the rights and liabilities in respect of claims filed under the Ordinance shall be extinguished on the passing of the Act. Since the question of application of clause 6 of the General Clauses Act arose in the case, the Court was required to consider whether the Act evinced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an acquirer may have acquired under the 1994 Regulations. It included the obligation to make a public offer. This submission overlooks the fact that what is contended on behalf of the Plaintiffs is that proceeding initiated against the defendants for the liabilities incurred was saved and could be continued resulting in directions to be passed under Regulation 39. Since the proceeding was expressly saved, the defendants cannot contend that any liability incurred by them was obliterated because that proceeding must be brought to its logical conclusion, and any order which the SEBI is entitled to pass may be passed in such proceeding. 162. Reliance placed by Mr. Desai on the decision in Rayala Corporation (P.) Ltd. v. The Director of Enforcement AIR 1970 SC 494 is also of no avail. That was a case where rule 132A of the Defence of India Rules, 1962 was omitted except in respect of things done or omitted to be done under that rule. The Court held that the language of clause 2 only afforded protection to action already taken while the rule was in force, but cannot justify initiation of a new proceeding which will not be a thing done or omitted to be done under the rule, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act to show that it intended to set at naught any final orders rendered by the competent authority under the repealed section 27 of the Regulations. Consequently, the immunity earned by the transaction of 22-3-1939 under the Regulation and the approval granted to it by the competent authority, viz., the Dy. Commissioner by order dated 28-12-1939 remained available and accrued to the vendee despite the repeal of section 27 of the Regulations by the Act. In that decision, the right accrued under the repealed enactment was not affected since a contrary intention did not appear from the scheme of the repealed Act. This authority also does not help the defendants because the decision was passed on the interpretation of the Bihar General Clauses Act and the scheme of the repealed Act. The saving provisions were not in the same terms as in the present case. 164. The last case cited by Mr. Desai is Kolhapur Canesugar Works Ltd. v. Union of India [2000] 2 SCC 536. In that case, the appellants had applied for rebate of excise on excess production of sugar for two months, viz., October and November 1974-75 in terms of the relevant notification. The rebate was sanctioned but on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the fact that section 27 was subsequently repealed made no difference as the repeal could not have the effect of rendering an invalid and void transaction a valid and binding transaction. Relying upon these observations, Mr. Nariman, submitted that if the acquisition of shares in breach of the Regulations of 1994 was invalid or void, the mere fact that the Regulations of 1994 have been repealed will not make the acquisition legal and valid, and, therefore, the proceeding initiated may be continued under Regulation 47 of the 1997 Regulations. 166. Mr. Nariman placed strong reliance on the judgment of the Supreme Court in Nar Bahadur Bhandari v. State of Sikkim [1998] 5 SCC 39, which, he submitted, clinched the issue. The facts of the case were that the Prevention of Corruption Act, 1947 was extended to the State of Sikkim with effect from 1-9-1976. Cases were registered by the C.B.I. against the Petitioners on 26-5-1984 and 7-8-1984 under various provisions of the Prevention of Corruption Act, 1947. However, the Criminal Law (Amend- ment) Act, 1952, which provided for constitution of Special Courts to try the offences under the Act of 1947, and excluded the jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gativing the contention, the Court held "The contentions urged on behalf of the petitioners are based on a wrong understanding of the provisions of the Act of 1988. No doubt, section 3 of the said Act refers only to offences punishable under the Act and the Special Courts constituted under section 3 will have jurisdiction to try the offences punishable under the Act but section 3 cannot be read in isolation. It should be read along with other provisions of the Act to understand the scope thereof. Section 30(1) of the Act of 1988 repeals the Acts of 1947 and 1952. That does not mean that any offence which was committed under the Act of 1947 would cease to be triable after the repeal of the said Act. Normally, section 6 of the General Clauses Act would come into play and enable the continuation of the proceedings including investigation as if the repealing Act had not been passed. As per the provisions of section 6 of the General Clauses Act, the position will be as if the Act of 1947 continues to be in force for the purpose of trying the offence within the meaning of the said Act. Section 6 of the General Clauses Act, however, makes it clear that the said position will not obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding provisions of the Regulations of 1997. Mr. Nariman further submitted that even if the defendants submission based on repeal is accepted, at best SEBI may not be able to take action, but that does not affect the jurisdiction of a Civil Court, or the right of Plaintiffs to file a suit for declaring the transaction void. 167. The next question which arises for consideration is whether in fact an enquiry or investigation had been commenced or a show-cause notice issued. The defendants take shelter under the fact that a show-cause notice was issued on 9-10-1996 to Ram Raheja, when the Regulations of 1994 were in force, but the second and the third show-cause notices issued on 31-3-1997 and 8-1-1999 to the Managing Director of Imfa and defendant Nos. 1 and 11 respectively, were issued after the Regulations of 1997 had come into force. Thus, no show-cause notice was issued to them when the Regulations of 1994 were in force. The submissions overlooks the fact that under the scheme of 1994 Regulations, a show-cause notice may be issued under Regulation 34 after an enquiry is commenced, and pursuant to the enquiry and reply to the show-cause notice, investigation may be ordered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare capital of Herbertsons. The letter also states that the defendants understood that SEBI was not satisfied with all the explanations given so far in relation to the direction issued by SEBI s letter dated 21-5-1996 which had to be complied with. In view of the facts stated in the letter, in order to settle the matter to the satisfaction of SEBI, defendant No. 11 had decided to make a public offer without prejudice to his earlier stand. This letter also indicates that defendant No. 11 knew that an enquiry was being conducted by SEBI and certain clarifications had been asked for from Herbertsons Ltd., and that SEBI was not satisfied so far with the explanations given. 168. These letters indicate that an enquiry was pending on the date on which the Regulations of 1994 came to be repealed. It also appears that the enquiry was in respect of acquisition of shares by defendant Nos. 1 and 11, and the companies under their control, in violation of the Regulations of 1994. In this background, the notices issued by SEBI to Ram Raheja in the first instance, and then to the Managing Director of Imfa and lastly to defendant Nos. 1 and 11 has to be understood. In the notice issued to defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission of Mr. Nariman. We express this view on the basis of the material on record, and it may be possible for the parties to adduce further evidence on the subject at the trial of the suit. 170. It was contended on behalf of the defendants that M.D. Chhabria had offered to SEBI to make a public offer and in fact SEBI had agreed to permit him to do so. However, the process was diverted on the interference of a high authority, and instead of asking the defendants to make a public offer, SEBI issued notices to defendant Nos. 1 and 11. This was characterised as mala fide. Mr. Nariman, submitted that in the absence of SEBI, such allegations cannot be investigated. Moreover, it is clear from the record that SEBI always took the stand that the acquisitions had been made in breach of the Regulations of 1994. Nor could the defendants be permitted to challenge the notices issued by SEBI which narrated the circumstances leading to the inference that the defendants acted in concert. According to him, these notices cannot be challenged collaterally, particularly when no responses to the notices on merits were given even though one-and-a-half year had elapsed. In fact, the defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced by SEBI into the transactions relating to acquisition of shares of Herbertsons Ltd., by the defendants in breach of the Regulations of 1994. 173. It was then sought to be argued before us by the defendants that the conduct of the Plaintiffs was such that they were dis-entitled to equitable relief. The defendants produced before us several documents to show that the Plaintiffs have been prima facie found to be guilty of various serious charges of diversion of funds of RP Nidhi in the State of Tamil Nadu. They have cheated thousands of small investors to whom neither the principal nor the interest has been paid. The Central Government had filed a petition under sections 397 and 398 of the Companies Act and sought supersession of the Board. It was sought to be urged, on the basis of an affidavit filed by the Deputy Superintendent of Police in the Supreme Court, that the Balaji Group were guilty of serious improprieties and fraudulent transactions. Mr. Nariman, strongly objected to this Court entertaining the plea urged on behalf of the defendants, and submitted that this Court should not go into these matters at all. The affairs of RP Nidhi and the involvement of Balaji Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with the relief sought. The Court is not concerned with the plaintiff s general conduct. In Shell s Equity, 29th edition, page 32, it is stated that the maxim must not be taken too widely. Equity does not demand that its suitors shall have led blameless lives. What bars the claim is not a general depravity but one which has an immediate and necessary relation to the equity sued for, and is not balanced by any mitigating factors. Apart from these, the law has been set at rest by the Supreme Court in Public Passenger Service Ltd. s case ( supra ), wherein it was observed ". . . Counsel then relied upon the well-known maxim of equity that he who comes into equity must come with clean hands , and contended that the Courts below should have dismissed the applications as the respondents did not come with clean hands. This contention must be rejected for several reasons. The respondents are not seeking equitable relief against forfeiture. They are asserting their legal right to the share on the ground that the forfeiture is invalid, and they continue to be the legal owners of the shares. Secondly, the maxim does not mean that every improper conduct of the applicant dise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though on a technical point, and the matter has been remanded for fresh hearing. However, it has been observed that these transactions were suspicious. They have also referred to such other acts of the Plaintiffs in collusion with Vijay Mallya, and submitted that all these facts would clearly establish collusion between Vijay Mallya and the Plaintiffs. It is also submitted that the claim made by the Plaintiffs that they could have made a competitive bid is a bogus claim and the Plaintiffs were never, and are not, in a position to make any such competitive bid though such an assertion is made in the plaint. A reference is made to proceedings before the Madras High Court in which the Plaintiffs are alleged to have admitted their liability to the extent of Rs. 85 crores though, according to the prosecution, the amount is much larger. It is submitted that the conduct of the Plaintiffs has to be examined in the light of the issue whether they are trying to agitate their own civil rights or are surrogates for someone else. Their close association with Vijay Mallya and the collusive agreements entered into between Herbertsons Ltd., and the Plaintiffs clearly established the fact that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bertsons Ltd. also, these issues were not raised. K.R. Chhabria, defendant No. 1, is the Vice-President of the Company, and he also does not claim to have objected to such transactions. He cannot claim that he had no knowledge of the agreements. Moreover, these agreements appear to be agreements entered into in normal course of business. There is no order of any competent authority or by a competent court declaring that these agreements are collusive or fraudulent. It may not be possible for this Court, in these proceedings, to go into the validity and genuineness of such agreements for the first time. There is hardly any material on record to justify an investigation into these matters by this Court for the first time, nor would it be proper for this Court to consider the question as to whether these agreements were collusive and fraudulent or were executed in the normal course of business. We fail to understand why the defendants did not challenge these agreements before the appropriate forum if it was their case that they are collusive and fraudulent or that they had been executed in breach of any provision of the Companies Act. We are, therefore, of the view that we will not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of finding out whether they were acting in concern. Their conduct in regard to other matters would neither weaken nor strengthen their case or the case of the Plaintiffs. 180. It was then submitted that the order passed by the trial Judge freezing the voting rights in respect of the shares acquired by Imfa and Mahameru, defendant Nos. 3 and 4 was unprecedented. Referring to various provisions of the Companies Act, it was submitted that the rights of the shareholder could not be curtailed. It was, no doubt, submitted that under section 111A of the Companies Act, the voting rights may be suspended by an order of the Company Law Board under a proceeding for rectification of the register of members. The defendants, however, contend that section 111A is a self-contained Code. Since the Civil Court had no power to rectify the register, it does not have the power to suspend voting rights in respect of the registered or unregistered shares. Therefore, the right conferred on every member of the company under section 87 of the Companies Act must be respected. The defendants complain that despite the fact that they had the support of almost 50 per cent of the shareholders, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inheres only in the Company Law Board. Since we have held that Civil Court is also competent to entertain a suit for rectification of register of members at the instance of a member, it must be held logically that in such a suit, the Civil Court can also pass such orders as the Company Law Board may pass in a proceeding under section 111A of the Act. If the Company Law Board can pass an order suspending the voting rights in respect of shares acquired, in a proceeding for rectification of register, there is no reason why a Civil Court cannot pass such an order in a suit for rectification of register of members. The suspension of voting rights is not a concept unknown to corporate law jurisprudence in this country, and infact, has statutory recognition. It may be that not many orders may have been passed by the Courts after the coming into force of the SEBI Regulations but, that does not make the order unprecedented, in the sense that such an order can never be passed by a Civil Court. Having regard to the facts of the case, the trial Judge was justified in holding that that if the voting rights in respect of the shares acquired in breach of the Regulations were not suspended, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of 1994, it may not be proper for us to suggest what orders it may pass. We leave it to the SEBI to pass such orders as it may deem fit and proper, and nothing said in this order should be construed as expression of our opinion on the question as to whether, the defendants should be permitted to make a post-facto public offer or not. Having considered all aspects of the matter, we are satisfied that the balance of convenience is in favour of the Plaintiffs. They have made out a prima facie case of breach of SEBI Regulations by the defendants. Proceedings are pending before the Company Law Board as well as SEBI apart form the suit. If protection is not given to the Plaintiffs, on the strength of their illegal acquisition, the defendants may be able to bring about a change in the management of the Company, and thereby defeat the very objective of the SEBI Regulations. The shareholders, for whose protection the Regulations have been framed, will be left high and dry and will not be able to get a fair value for their shares which they would have got had the defendants made a public offer and invited the shareholders of the company to participate in such public offer. These an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt as well. Having regard to the facts and circumstances of the case, we are not inclined to pass any such direction at this stage of the proceedings. 186. In view of the findings recorded by us, we find no merit in these appeals and the same are accordingly dismissed but without any order as to costs. 187. After the judgment was delivered, a prayer was made on behalf of the parties jointly, and accordingly, we pass the following order : The operative part of the judgment and order delivered today is stayed upto 31-12-2001, and in view thereof, the interim order dated 1-12-1999, staying the holding of general meetings of Herberstons Ltd., shall continue for a similar period upto 31-12-2001. The parties agree that all proceedings in this Court, Delhi High Court, Bombay City Civil Court and the Company Law Board shall not be proceeded with till 31-12-2001. 188. Mr. Doctor, appearing on behalf of the appellants, submitted that a similar interim order may be passed in regard to proceedings pending before the SEBI. We are informed that the SEBI has concluded hearing the parties but no order has been passed. The parties are not agreeing on the question of stay of proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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