BEFORE THE COMPANY LAW BOARD

NORTHERN REGION BENCH

NEW DELHI

 

Dated 4th   July 2001

C.P. No.46/111A/2000

 

                 Present: 1. Justice A.K. Banerji, Chairman
                                             2. Shri S. Balasubramanian, Vice Chairman

 

In the matter of Companies Act, 1956- Section 111A

AND

In the matter of Bombay Dyeing & Manufacturing Co.Ltd

PETITIONER:

Bombay Dyeing & Mfg. Company Limited

RESPONDENTS:

1.     Shri Arun Kumar Bajoria

2.     Ms Mohini Devi Bajoria

3.     Ms. Pooja Bajoria

4.     Mrs Lata Devi Bajoria

5.     Mega Stocks Ltd

6.     Mega Resources Ltd

Present on behalf of parties:

1. Shri Aspi Chinoy, Sr. Advocate               .. for petitioner

2. Shri D.J. Khambata, Advocate               .. for petitioner

3. Shri Anoj Menon, Advocate                         .. for petitioner

4. Ms. Ruby Ahuja, Advocate                         .. for petitioner

5. Shri Avantika Keswani, Advocate               .. for petitioner

6. Shri Raian Karanjawai, Advocate               .. for petitioner

7.Shri Sudipto Sarkar, Sr. Advocate               .. for respondents

8. Shri S.N. Mookherjee, Advocate               .. for respondents

9. Shri Ratnaiko Banerjee, Advocate               .. for respondents

10.Shri Raian Karanjawai, Advocate               .. for respondents

ORDER

(Date of hearing: 11.6.2001)

S.BALASUBRAMANIAN:

1.     In this petition filed under Section 111A of the Companies Act ( the Act), the petitioner company has sought for rectification of the Register of members of M/S Bombay Dyeing & Manufacturing Company Limited     ( the company) by deleting the names of respondents 1 to 6 in respect of the shares impugned in the petition on the ground that these respondents had  failed to comply with Regulation 7 of SEBI ( Substantial Acquisition  of Shares & Take Over) Regulations 1997 (Take Over Code ). This petition was originally filed before the Western Region Bench  and was later on  transferred to the Northern Region Bench with the consent of the parties.

2.     A summary of the petition is as follows: The petitioner company was informed by its Registrars M/S Sharepro Services on 28th  June, 2000 that as per the download of the data received from National Securities Depository Limited ( NSDL) the 1st respondent along with respondents 2 to 6 had acquired and were holding shares of the petitioner company exceeding 5% as on 20th June, 2000.   As per the letter from Sharepro Services dated 6th July, 2000, the collective percentage holding of these respondents as on 20.6.2000 was 5.3% and as on 27.6.2000, it was 5.7%.  As per Regulation 7 of the Take Over Code,  these respondents, having acquired the shares in concert, should have informed the company about their acquisition beyond 5% within 4 days of such acquisition.  However, they had not informed the company.  Therefore, the same was reported to the SEBI by a letter dated 7th July, 2000 seeking for investigation into the said acquisition.  In a letter to the SEBI dated 4th August, 2000, the 1st respondent had intimated that he along with the other respondents held as on 31.7.2000, 5244894 shares constituting 12.7% shares in the company.  Since these respondents had not disclosed their acquisition beyond 5% shares in the company, in terms of Section 111A(3) of the Act, the Register  of members should be rectified by deleting their names from the Register in respect of all the shares acquired by them. 

3.     When the petition was mentioned, the Bench passed an order on  19.9.2000 freezing the voting rights in respect of these shares.  Thereafter, the 1st respondent filed his reply to the petition stating that by a letter dated 16th March, 2000, sent under  certificate of posting,  the 6th respondent had informed the company that its  shareholding along with its associates had exceeded 5% of the  shares in the company.  In addition the 6th respondent had  informed the Calcutta Stock Exchange also about this acquisition beyond 5% by a letter dated 29th March, 2000.  Therefore the respondents had complied with the requirement of Regulation 7 of the Take Over Code and as such this petition should be dismissed.  After filing of the reply and rejoinder,  the 1st respondent filed an application seeking for dismissal of the petition as time barred and during the course of arguments, the petitioner also filed an application seeking for condonation of delay if any.

4.     Shri Aspi Chinoy, Sr. Advocate appearing for the petitioner submitted as follows: As per Regulation 7 of the Take Over Code, any acquirer acquiring shares of more than 5% shares in a company has to disclose to the company the aggregate of his shareholding within 4 days from such acquisition.  As per Definition 2 (b) of the Code, an acquirer means any person acting in concert with such  an acquirer.  In the present case, the 1st respondent acting in concert with the other respondents  had acquired beyond 5% shares without informing the company.  The company came to know from its Registrar on 28th June, 2000 that the respondents had exceeded the limit of 5% on 20th June, 2000 in which case they should have disclosed the same to the company by 24th June, 2000.  Since they have failed to do so, there is a violation of the provisions of Regulation 7 of the Take over Code. Section 111A(3) entitles a company to move the Company Law Board to seek rectification of the Register of Members in case of transfer of shares  in violation of any Regulation made by the SEBI. In the present case, since the respondents had not disclosed their aggregate holding beyond 5% within 4 days, the company has filed this petition in terms of Section 111A(3) of the Act.

5.     He further submitted as follows: Even though the respondents contend that the 6th respondent had informed the company by a letter dated 16th March, 2000 allegedly sent under certificate of posting about their acquisition beyond 5%, the said letter was never received by the company. The certificate of posting relied on by the respondents( at page 13 of the reply) is a fabricated document as is evident from the fact that the same has been obtained from a post office which is about 4 Kms. away from the office of the 6th respondent even though there are post offices within a walking distance from the office of the 6th respondent. Further, there are three seals  of the post office as against the normal one seal  against each address to be impressed by the post office. In a case where a certificate of posting containing two addresses bore only one seal against one address, the court held that the other address had been inserted fraudulently to show that a letter was sent to that addressee. (Basudeb Kataruka V Dhanbad Automobiles Pvt Ltd – (47 CC Pat). In the present case, perhaps, the seals were obtained on a plain paper and later on the address of the company was written. Therefore, the certificate of posting relied on by the respondents has no evidential value. Further, they have not adduced any independent  evidence through the postal authorities. It has been held that even in case of the return of a registered post as “refused”, if the addressee makes a statement on oath that the said  letter was not tendered for delivery, then the presumption that the letter was tendered stands rebutted, unless the concerned postman is summoned and he states that the letter was tendered (Meghji Kanji Patel V Kundanmal Chanmanlas Mehtani AIR 1968 Bom 387). In the present case, the petitioner has averred on oath that it has not received the alleged letter dated 16.3.2000. Further, the alleged letter of 16.3.2000 was not disclosed by the 1st respondent in his  letter to the SEBI dated 4.8.2000 which was in reply to the letter of SEBI dated 26.7.2000 wherein a specific query was made as to whether the respondents had complied with the requirements of Regulation 7 of Take Over Code.  If the letter dated 16.3.2000 had really been sent, the same  would have been  definitely referred to  at the earliest opportunity, that too when a specific query had been raised by the SEBI.  Therefore, there is absolutely no doubt that the certificate of posting is a fabricated one and that  the respondents never complied with the requirements of Regulation 7 of the Code. Further, such an important communication could have never been sent by UPC by a business house, namely, the 6th respondent. In Subash Chandra Verma V State of Bihar (1995 Supp (1) SCC 325) the Supreme Court has observed that when some important communication is sent, the best way is to either lodge the same personally or send it by registered post and not by UPC. In Gadakh Yashwantrao V EV Alias Balasheb Vikhe ( 1994 1 SCC 682), the Supreme Court has observed that when the receipt of a letter sent by UPC is denied by the addressee, the likelihood of its dispatch by the sender is extremely doubtful since it was not sent by registered post and a certificate of posting being easy to obtain is not reliable. In  Shiv Kumar V State of Haryana (1994 4 SCC 445) also the Apex Court has observed that it is not safe to decide a controversy at hand on the basis of the certificate of posting as it is not difficult to get such postal seals at any time.    Further, in LMS Ummu Saleema V BB Gujral ( AIR 1981 SC 1191), the Apex Court has pointed out “ The certificate of posting might lead to a presumption that a letter addressed to the Asst.Collector of Customs was posted on 14.8.1980 and in due course reached the addressee. But that is only a permissible and not an inevitable presumption. Neither Section 16 nor Section 114 of the Evidence Act compel a court to draw a presumption. On the facts and circumstances of a case the court may refuse to draw the presumption”. It has been held by courts in many other cases also that in case of UPCs, the receipt of which is denied by the addressee, then the onus to prove that the letter was posted  and received by the addressee rests on the sender.  In the present case, even though affidavits from two  employees of the 6th respondent have been filed stating that the said letter was posted, yet, in the absence of any corroborative documentary evidence like the Despatch Register. Postage Account etc., no cognizance of the affidavits  should be taken as held in Shoe Specialities Pvt Ltd V Stridewell Leathers Pvy Ltd (82 CC 836) and Bhankerpur Simbholi Beverages Pvt Ltd V Sarabhjit Singh ( 86 CC 842). Further, since Regulation 7 prescribes disclosure to the company within 4 days of acquisition, mere posting of the letter is not sufficient and it should have been  received by the company within 4 days. It has been held in Ramanna V T.Jayaprakash (92 CC 517) and K.Narasimhiah V HC Singri Gowda ( AIR 1996 SC 330) that “Giving” of anything as ordinarily understood in the English language is not complete unless it has reached the hands of the person to whom it is to be given. Thus as soon as the person with the legal duty to give the notice despaches the notice to the address of the person to whom it has to be given, the giving is not complete.”  Therefore, in the present case, even assuming that the letter was posted, the same was not received by the company and as such the disclosure is not complete.

6.     The learned counsel further submitted: The alleged letter dated 16.3.2000  is also  not in conformity with the format prescribed by the SEBI for disclosing the acquisition and therefore, it is not a proper disclosure. Therefore, even assuming that the 6th respondent had posted the latter, there is no proper disclosure as it does not contain details of the shares held, the date on which 5% was exceeded, the details of the associates or those acting in concert etc. Therefore, there is no compliance with the provisions of Regulation 7.

7.     In regard to the reliance of the respondents on the letter dated 29.3.2000 sent to the  Calcutta Stock Exchange by the 6th respondent, the learned counsel argued: This alleged letter is relied on by the respondents to substantiate their stand that they had sent the letter dated 16.3.2000. Regulation 7 does not require disclosure by an acquirer to  the Stock Exchange and it is for the company to do so after the disclosure is made to the company. In this case, the 6th respondent, has allegedly informed the Calcutta Stock Exchange but on an enquiry made by the Stock Exchange, and it has found our that   the acknowledgement obtained from the Stock Exchange for the receipt of the said letter was a fabricated one as is seen from the letter from the Exchange dated 30.11.2000. Further, when the main stock exchange in which the shares of the company are dealt with is Mumbai Stock Exchange, there was no need to inform the Calcutta Exchange and only to create false evidence, the respondents have purportedly informed that exchange.  Accordingly, it should be held that the respondents had failed to comply with the provisions of Regulation 7 of the Code and therefore their acquisitions of shares is illegal, null and void and therefore the   names of the respondents in respect of all the shares acquired by them should be deleted from the Register of Members.

8.     In regard to the plea of limitation raised by the respondents, the learned counsel submitted as follows: The period of two months from the date of transfer as provided in Section 111A(3) cannot be applied in a straight jacket manner in all cases.  The company came to know of the acquisition of shares by the respondents beyond 5% only on 28.6.2000 from its Registrar that the respondents had acquired 5.3% shares as on 20.6.2000. This petition was filed on 18.8.2000 which is within 2 months of the date of knowledge of the violation. Therefore, this petition is maintainable in terms of Section 111A(3). Further, once the company came  to know of the violation,  by a letter dated 7th July, 2000, it   brought this viloation to the notice of the SEBI to initiate action in terms of the SEBI Act ( Page 11 of the Petition).  Thereafter, SEBI wrote a letter to the 1st respondent by a letter dated 26.7.2000 asking him to furnish various information in relation to the acquisition of shares in the company.  In this letter, in Paragraph 4, SEBI had asked him whether the provisions of Regulation 7 (1) of the Code had been complied with.  In response to this, in his letter dated 4.8.2000, the 1st respondent had not made any mention about Regulation 7 (1) of the Code. Only in his later letter dated 29.8.2000, the 1st respondent referred to the alleged letter of 16th March, 2000 and also the letter to the Calcutta Stock Exchange.  In neither of these letters, the 1st respondent had indicated the date on which he and his associates had exceeded 5% shares and had also not furnished the details of his associates.   The company never received the letter dated 16th March, 2000 allegedly sent by the 6th respondent by certificate of posting.  This letter was never disclosed when the Bench passed the interim order, freezing the voting rights. The learned counsel submitted that the cause of action for the company to file this petition arose only when it came to know of the violation on 20th June, 2000 and since  the petition was filed within two months from the date of knowledge, the petition is maintainable.  The Learned Counsel further contended  even assuming that knowledge could be attributed to the company to a date prior to 28.6.2000, in facts of this case, the marginal delay in filing the petition should be condoned in terms of Section 5 of the Limitation Act.  In V.K Gupta V Auto Lamp(1999 2 CLJ 519)  the CLB has applied the Provisions of Section 5 of the Limitation Act and condoned the delay finding that the delay was not intentional or unavoidable.  Since in that case the CLB has held that Limitation Act was applicable to the proceedings before the CLB, the same view  should be taken in the present case also.  Even otherwise, to meet the ends of justice,  condonation of delay should flow from the inherent powers of the CLB.  Further, when a person violates the mandatory disclosure, he cannot claim limitation as the non disclosure amounts to a fraud.   In Rahambhoy Hubibbhoy Vs. Turnar ( 1892  20  IAPC ),  it has been held that in cases of fraudulent acts, the limitation would start only from the date on which the fraud comes to light irrespective of the date of occurrence of the fraud. Thus, in facts of this case, the CLB should declare that the acquisition of the shares by the respondents, being in violation of Regulation 7 is null and void and order rectification of the register of members by deleting the names of the respondents in respect of all shares acquired by them.

9.     Shri Mookherjee appearing for respondents submitted as follows:  This petition is not maintainable as being time barred.  As per Section 111A(3) of the Act, the petition for rectification of the Register of Members has to be filed within 2 months from the date of  transfer if the shares are held by a depository or in other cases, within two months from the date on which instruments of transfers are lodged with the company.  In the present case, the shares are held by a depository and therefore the period of two months would start from the day on which the transfers were effected  in the depository.  This being the statutory provision, reckoning  the period of limitation from the date of knowledge does not arise. Even otherwise, the petitioner company should have had the knowledge of the acquisition of the shares by the respondents much earlier to 28th June, 2000 as in terms of the Depository Act, a company is bound to ascertain the shareholding position of the shares held in a depository on a daily basis. In other words, the company should know on a daily basis the complete details of the beneficial owners of the shares  held in a depository. A reading of the provisions of Sections 7, 10, 13, 25 and 26 (m) of the Depository Act would indicate that there should  be a continuous contact between the depository and the company to enable the company to know the details of transfer of shares and also the beneficial owners.  This is also evident from Regulations 30 of SEBI                        ( Depositories and Participants) Regulations 1996, according to which reconciliation of records of ownership has to be made on a daily basis.  It is also stipulated in Regulation 31 that there shall be continuous electronic means of communication between the company and the depository. It is also provided in   Regulation 38(1)(cc) that a depository has to maintain details of holding of securities of beneficial owners at the end of each day. A similar provision has been made in Regulations 45, 49, 50, 55 and 56.  Therefore the company ought to have known, on a daily basis, the holdings of the respondents. In its reply dated 17.2.2001 to the application of the respondents, the company has furnished a statement of the holding of the respondents as on 13th June, 2000 as 4.3% ( Exhibit –A). In page 38 of the sur rejoinder, the respondents have furnished a transaction  statement indicating the holding of the 6th respondent as on 14.6.2000.  If the figures of both the statements are added together, then the holding of the respondents would go beyond 5%.  Therefore, at the earliest, the company had the knowledge of holding of the respondents beyond 5% definitely on 14.6.2000 and therefore this petition should have been filed by 14.8.2000. Since the petition was filed only on 18.8.2000, the petition is time barred. Even otherwise, the company has not indicated as to how it formed an opinion that the respondents were acting in concert when it got the letter of 6th July, 2000 from M/S Sharepro Services ( Page 10 of the Petition). If their association was established by the commonality of the addresses, there is no reason why they should have omitted the name of Ms. Meenakshi Jatia who also resided in the same address and who is holding shares in the company.  Therefore, even assuming that date of knowledge is the starting point of limitation, then, the company had the knowledge on 14.6.2000.  Even otherwise, the company itself has stated in paragraph 9 of its rejoinder that the holding of the respondents exceeded 5% in the middle of May  2000. Further, in its letter dated 29.9.2000 (page 20 of the repy), the SEBI had also indicated that the respondents had exceeded 5% in the month of May, 2000.  This information should have been furnished only by the company to the SEBI and if so, the company had the knowledge of the acquisition even in the month of May, 2000.  Thus whether the company had the knowledge either in May or on 14th June, 2000, the petition has not been filed within two months from the date of knowledge and as such the petition is time barred.

10. He further submitted: The CLB has no powers to condone the delay as no such powers to condone has been vested in the CLB by the Statute. In Carbon Corporation Limited Vs. Abhudaya Properties Limited               ( 73 CC  572 ), the CLB has held that the provisions of Limitation Act are not applicable. In AV Sampat  Vs. Dunlop India Limited ( 87 Comp.Cases 398 ) also the CLB has held that the provisions  of the Limitation Act are not applicable to the proceedings before the  CLB. The decision of the CLB to condone the delay in Auto Lamp ltd case was because the Delhi High Court had remanded the case with the direction to whether the delay could be condoned or not and it was not an independent decision of the CLB, which has always held that the provisions of the Limitation Act are not applicable to the proceedings before the CLB. In Town Municipal Council Vs. Presiding Officer, Labour Court ( AIR  1969  SC  1335 ) and in Nijyanand Vs. LIC ( AIR 1970   SC  209 ), it has been held that  the provisions of Limitation Act are applicable only to proceedings before a court and not to the proceedings before  a Tribunal. In Metal Press Limited Vs. Ram Pratap Kayan ( 72  CWN  594), the Calcutta High Court has held that in terms of Section 111, an appeal against refusal to register the  transfer of shares must be preferred within two months from the date of refusal, otherwise it would be barred by Law of Limitation.  Further, even Regulation 43 of the CLB Regulations empowering the CLB to extend the time is applicable only in respect of the time fixed in the Regulations. Further, no judicial body has inherent powers to condone delays and the power has to be conferred by the Statute. If so, then, in terms of provisions of Section 5 of the Limitation Act, as sought for by the petitioner, the delay cannot be condoned. Therefore, the prayer of the petitioner to condone the delay in filing the petition cannot be granted and the petition should be dismissed as time barred.

11. Shri Mookherjee further submitted as follows: The shares of a public company are freely transferable in terms of Section 111A of the Act.  Section 111A(3) of the Act deals with only transfer of shares and not acquisition.  Even Regulation 7 of the Code does not prohibit acquisition and  it only requires disclosure unlike Regulations 10 and 11 which prohibit acquisition without complying with the provisions of these Regulations. Therefore, omission to disclose cannot make either the acquisition or the registration of transfer  as void or illegal.  Further, Regulation 7 requires intimation only by an acquirer. Since the term “acquirer” has been used in singular, persons acting in concert do not have to disclose acquisition of shares. This is in contrast to the provisions of Regulation 10 which specifically includes  acquirer and those acting in concert with him. Even   Regulation 2(b)does not indicate that an acquirer includes those acting in concert.  Therefore, other than the 6th respondent, no other respondent had any obligation to disclose.  A perusal of the format prescribed by the SEBI for disclosure in terms of regulation 7 also talks of an acquirer and  not those acting in concert while other formats specifically mention an acquirer and also those acting in concert. Therefore, the question of acting in concert would arise only when the acquisition exceeds 15% or common interest to acquire substantial shares in the company. Further, the 1st respondent has specifically informed the SEBI through his  letter dated 4th August 2000 that the respondents  had no idea of acquiring shares beyond 15%,  and as such the question of acting in concert does not arise. In this connection he relied on the decision of this Board in  Azzilfi Finlease and Investments (P) Ltd. Vs. Ambalal Sarabhai Enterprises Ltd. ( 2000  1 CLJ  118 ) to state that in  similar case the CLB did not consider  the shares held by persons acting in concert.

12. As far as the letter dated 16.3.2000 is concerned, the learned counsel submitted: This letter communicating that the respondents had acquired more than 5% shares was posted on 16.3.2000 under certificate of posting and in the normal course  the company must have received the same. The posting of the letter is evident from the copy of the certificate of posting annexed at page 13 to the reply. Further the respondents have also produced  affidavits  from the person who had prepared the letter dated 16.3.2000 and  also from the  peon of the 6th respondent who had posted that letter  averring that the said letter  was posted  by him under certificate of posting in Dharamtala  Post Office.  Therefore, neither the fact  of posting of that letter nor the genuineness of the  certificate of posting could be challenged. In none of the cases cited by the learned counsel for the petitioner in regard to the reliance on UPC, such corroborative evidence was furnished.  In the mater of Re part cargo ex staeamship Belgaria (AIR  1918  PC), it has been held that when a letter is posted, a presumption should be drawn that the same was received  by the addressee.  Since an employee of the 6th respondent has affirmed that he had posted the  letter and since there is a postal certificate with the seal of the post office  evidencing the posting, presumption should be drawn that the company had received the said letter.  In Hemangini Dassee  Vs. Sarnalatika Dassee ( AIR  1940  Cal. 227 ), it was held that in case of a  UPC, presumption is that the letter was posted and reached the destination unless contrary is proved and that it is entirely wrong for the court to work on the presumption that the certificate of posting is a forged one. The fact that the 6th respondent had disclosed its holdings  to the company is evident from the fact that it had also intimated the Calcutta Stock Exchange by a letter dated 29.3.2000. The Stock Exchange also, in its letter to the SEBI dated  16.10.2000 had intimated that  the said letter had been received by them,  but later on, on some flimsy grounds, it had  denied the receipt of the letter.  Further, since the respondents are yet to respond to the show cause notice issued to SEBI, the letter of the Calcutta Stock Exchange dated  30.11.2000 regarding the alleged fabrication of its acknowledgement of the letter dated 29.3.2000 should not be taken cognizance of in these proceedings. 

13. Summing up his arguments, Shri Mookherjee submitted that this petition should be dismissed as time barred and since even otherwise the 6th respondent had intimated the company by its letter dated 16.3.2000 as corroborated by its employees and evidenced by the certicate of posting,  there is  compliance to the provisions of Regulation 7 of the Code and as such this petition should be dismissed. In this connection, he also contended that the decision of this Board in Nile case is not applicable to the present proceedings in as much as that case was under Section 111A(2) of the Act wherein the issue related to refusal to register transfer of shares while Section 111A(3) deals with rectification of Register of Members.  Further in that case, the point that Regulation 7 of the Code does not prohibit acquisition of shares was not taken nor considered by the CLB. Therefore, this petition should be dismissed in limini.

14. Shri Sarkar, also  appearing for the respondents, submitted that the powers vested by Section 111A(3) of the Act on the Company Law Board are discretionary in nature and as such even if   the violation of Regulation 7 of the Code is established, taking into consideration that the shares of a public company are freely transferable, the CLB should not pass any order adverse to the respondents.  He also submitted that the petition itself has become infructuous in as much as the present holding of the respondents has come down below 5% as the balance shares have already been transferred by them as is permitted by Section 111A(5) of the Act.

15. Replying to the arguments of the counsel for the respondents, Shri Chinoy submitted as follows: No company would be in a position to know that persons are acting in concert in acquiring shares of a company unless and until such persons disclose their acting in concert to the company. It is more so in case of shares in the depository. Therefore, having concealed the fact of their acting in concert, the respondents cannot now claim that the company itself should  have found out, on the basis of the information available with it, about the acquisition beyond 5% shares and then contend that the limitation starts from the date of transfer and not from the date of knowledge.  The contention of the counsel for the respondents that the company should be aware of the shareholding position on a day to day basis is fallacious.  As per Section 31 of the Depository Act, a depository is to furnish information to the company at such intervals as may be specified by the bye laws.  Accordingly, the NSDL which is the depository of the company, has framed the bye laws with the approval of the SEBI.  As per by-laws 8.5.6, the NSDL is to furnish the details of the shareholders  to the company or its registrar every fortnight.  Therefore, the claim of the respondent that the company was to know the details of the shareholders on a daily basis is not correct.  None of the SEBI (Depositories and Participants) Regulations relayed on by the Learned Counsel for the respondents would support his stand that the company would have to have a knowledge of the shares held in the depository on daily basis.   The first time that the company came to know of the shareholding of the respondents beyond 5% was on 28.6.2000 when its Registrar got a download indicating that the respondents had exceeded 5% shareholding as on 20.6.2000.  The respondents have relayed on certain shares pledged with Indus Ind Bank to contend that the company was aware of the shareholding of the respondents beyond 5% in the middle of May 2000.  This argument is  also fallacious as the company could never link the shares in the name of a Bank with that of the respondents especially when Section  12 of the Depositories Act  requires that in case of a pledge of securities, various information have to be furnished to the depository which has not been done in this case and, therefore, the company could never connect the shares pledged with that of the respondents .  In view of this the respondents cannot attribute knowledge of the shareholdings beyond 5% to the company earlier to any date other than 28.6.2000.  This being the position and since this petition was filed on 18.8.2000, the same is within the time limit of two months prescribed in Section 111A (3) of the Act. 

16.  On merits of the case the Learned Counsel submitted that the CLB has already held in Gujarat Machinery Manufacturers V Nile Ltd                  ( 105 CC 817)  that violation of the provisions of Regulation 7 of the Take Over Court would be a sufficient cause for refusal to register transfer of shares.  In the present case the prayer sought is for rectification of the register of members of the company for the violation of Regulation 7 which is pari materia  with refusal to register the transfer of shares and as such this Bench cannot take a different view.  Even though Regulation 7 does not bar acquisition  of shares,  non disclosure of the same in terms of Regulation 7 would invalidate the acquisition.  Disclosure of acquisition in terms of regulation 7 is in public interest  and when one defaults then the entire acquisition has to be declared as invalid.  In the present case since the respondents have not indicated details of their acquisition even below 5% in their letter dated 4.8.2000 (page 15 of the petition) as to when and how even shares were acquired, as in the case of Nile Ltd  decision, the entire acquisition of the respondents should be declared as invalid notwithstanding the fact that they had later on transferred certain shares and that their present  holding is below 5%  as once there is a violation of a mandatory provision, the entire acquisition becomes void ab-initio. 

17. We have considered the pleadings and arguments of the counsel.  The complaint of the petitioner is that the respondents acting in concert have failed to disclose their acquisition of shares in the company beyond 5% and have thus violated the provisions of Regulation 7 of the Take Over Court the violation of which merits rectification of register of members in terms of Section 111A(3).  Regulation 7 of the Take Over Court which has been framed by the SEBI in exercise of its powers under Section 30 of the Securities and Exchange Board of India Act 1992 reads :

·        Acquistion of 5% and more shares are voting rights of a company:- (1) Any acquirer, who acquires shares or voting rights which (taken together with the shares or voting rights, if any, held by him) would entitle him more than 5% shares or voting rights in a company, in any manner whatsoever, shall disclose the aggregate of his shareholding or voting rights in that company, to the company

·         (2) the disclosure mentioned in sub-Regulation (1) shall be made within 4 working days of  -

                    (a) the receipt of intimation of allotment of shares or

         (b) the acquisition of shares or voting rights, as the case may   be  (3) Every company, whose shares are acquired in a manner referred in sub Regulation (1), shall disclose to all the Stock Exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within 7 days of receipt of information under Sub-Regulation (1). 

18. Section 111(a)(3) of the Act reads:

·        The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities Exchange Board of India Act 1992 or Regulations made there under or the Sick Industrial Companies (Special Provisions Act) 1985 or any other law for the time being in force, within two months from 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 transmissions  was delivered to the company, as the case may be after such enquiry as it thinks fit, direct any depository or company to rectify its register or records. 

19. The respondents have contended that  the petition is time barred as the same has not been filed within two months from the date of transfer as stipulated in section 111(a)(3) and that the date of knowledge has no relevance, that the CLB has no powers to condone delays, that Regulation 7 does not prohibit acquisition of shares beyond 5% and therefore non disclosure does not merit rectification of the register of members, that only an acquirer and not those acting in concert have to disclose the acquisition to the company meaning thereby,  that the aggregate shareholding of all those acting in concert will not be the basis for computing 5% shares. 

20. We have to first determine as to when the period of limitation would start-whether from  the date of transfer or from the date of knowledge. As per Section  111A(3) an application for rectification is to be filed within two months of the date of transfer in case of shares held in a depository. Since, in the present case, the shares of the company are held in the depository in which the transfers are registered instantaneously, in the normal course,  a petition for rectification has to be filed within 2 months of the date of transfers. However, we are of the view,  that  in cases, where the statute itself mandates disclosure of the acquisition by transfer, then the date of disclosure failing which the date of knowledge of transfer of shares would be the starting date of limitation. For forming this view, we draw support from the Division Bench judgment of Calcutta High Court in Smt. Nupur Mitra Vs. Basubani Private Limited ( CAL LT  1999 (2) HC  264 ). In that case, the petitioners filed a petition under Section 111 in 1998 alleging that the company had allotted shares in 1950 without following the provisions of Section 105C of the Companies Act 1913 and that the petitioners had come to know of the violation only in 1996.  Since the petition was filed nearly 50 years after  the allotment, the CLB dismissed that petition  as time barred.  On appeal, the High Court observed that in case of violation of mandatory statutory provisions, the limitation would start only from the date of knowledge of the violation and remanded the case back to the CLB for considering the merits of the case.  In the present case, the Regulations having been formulated by the SEBI in terms of the powers under Section 30 of the SEBI Act, the Regulations would also have statutory effect  and as per  Regulation 7 an acquirer “shall disclose” it is a mandatory provision.  Since the allegation is that the respondents  had not complied with the statutory mandatory obligation, limitation would start only from the date of knowledge of the violation.

21. Having held that limitation would start only from the date of knowledge, we shall examine the present case. The respondents have presented three senerios to attribute knowledge to the petitioner company- 15th March 2000 as per their  reply to the petition, mid May 2000 as per their rejoinder and 13th/14th June 2000 as per the argument of their learned counsel. As far as 15th March 2000  is concerned, we find that, inspite of statements furnished by the respondents in regard to their holdings on various dates, no consolidated statement of their holding as on 15th March has been filed before us. Even in the letter dated 16th March 2000, the 6th respondent had not indicated 15th March as the date of crossing the limit of 5%. In his letter dated August 29, 2000, the  1st  respondent has given the details of the shareholding as on 19.6.2000, 20.6.2000, 27.6.2000 and 29.8.2000. As per this statement, as on 19.6.2000, the respondents held nearly 12% shares in the company. In his letter dated 4.8.2000 to the SEBI, the 1st respondent has indicated the  shareholding as on 31.7.2000 and in the annexures to that letter, the shareholding as on 9.10.2000 and 19.10.2000. In annexure C to his letter dated 31.10.2000 to the SEBI, he has furnished the details of the purchases made by his companies from 10th December 99. The total of the purchases made upto 11.3.2000 ( the next date of purchase is 22.3.2000) works out to 13,12,496 shares accounting for about 3% shares in the company. We also note that in his letter to the SEBI dated 16.10.2000 (page 29 of the reply), the 1st respondent has stated that on the basis of contracts entered into, the shareholding exceeded 5% on 15th March and on the basis of payments made it was exceeded  on 28.3.2000. Since there would be no entries in the Depository in regard to the contracts entered into, it is clear that the company could have  never known that as on 15.3.2000, the respondents had crossed the limit of 5%. Therefore, the question of attributing knowledge to the company on the 15th March 2000 does not arise to compute the period of limitation from that date.

22.  In his sur-rejoinder, at page 7, the 1st respondent has referred to Annexure “R1” indicating the shareholding as on 12th May 2000  of 20.58 lakhs shares working out to 5.14% shares in the company. This includes 1.1.% shares held by Indusind bank.  In view of this, it is contended that the knowledge of the acquisition should be attributed to the petitioner at least in mid May. According to the respondents, out of the 20.58 lakh shares if 4.5 lakh shares held by IndusInd Bank by way of pledge is deducted, then the percentage holding of the respondents would be only 4.04% which is below 5% in mid May. The contention of the learned counsel for the petitioner is that since  the respondents had not followed the  procedure relating to pledge of shares by the respondents, it would not be possible to know that the pledged shares belonged to the respondents. We agree with this contention. Further we also note that in paragraph 10 of the sur-rejoinder  it is  stated that the shares were pledged with the Bank by way of transfer. If the shares had already been transferred, then the question of counting the shares with those of the respondents does not arise. Therefore, we cannot count the limitation from mid May 2000 also by attributing knowledge to the company that the respondents had crossed the limit of 5% in mid May 2000.

23. In regard to the shareholding of the respondents as on 14th June 2000, a statement indicating the shareholding position on that day has been furnished at Annexure ‘R-8’ to the sur rejoinder. According to this statement, the respondents held 25.95 lakh shares including 90,000 shares with Indus Ind Bank. The contention of the respondents is that at least by this date the company should have been aware that the respondents had exceeded 5%. For this contention, he relied on various provisions of the Depository and Participants Regulation to state that the company should have been aware of the shareholding on a daily basis. In view of this, according to him,  the petition having been filed only on the 18th August, is beyond the period of two months. The learned counsel for the petitioner pointed out that on this day the 6th respondent had purchased 8 lakh shares, without which the shareholding of the respondents would not have crossed 5% on that day. Since the Depository furnishes only  a fortnightly statement of the shareholders, on the day of purchase/transfer itself, the company would not know of the same. We find from the NSDL bye-laws as approved by the SEBI, as pointed out by the learned counsel for the petitioner, that in terms of bye-law 8.5.6. NSDL is to furnish electronically the details of the Clients to the Issuer and/or its Registrar every fortnight. Therefore, on 14th June when the shareholding of the respondents exceeded 5% due to purchase of 8 lakhs shares on that date, we cannot impute knowledge of the same to the company. Therefore, the respondents have not established that the company was aware of the shareholding of the respondents in excess of 5% prior to 20th June 2000 and since the petition was filed on 18th August 2000, that is within 2 months of the knowledge of exceeding 5% by the respondents on 20th June 2000, we hold that this petition is not time barred and is therefore maintainable.

24. Even though we have held that the limitation starts only from the date of knowledge and that this petition has been filed within two months of the knowledge, since the issue relating condonation of delay and the applicability of the provisions of Limitation Act have been raised, we shall deal with that also. As rightly pointed out by Shri Mookerjee, various Benches of this Board have taken the view, that since the CLB is not a court, the provisions of the Limitation Act are not applicable to the proceedings under Section 111. However, in Basubani Pvt Ltd case(supra), the Division Bench of Calcutta High Court, relying on the decision of Supreme Court in  Canara bank V Nuclear Corporation of India ( 1995 Supp (3) SCC 81),  held that in a proceedings under Section 111, the provisions of Limitation Act would apply.  This judgment was taken on an appeal wherein the Supreme Court after observing  “Various contentions are raised on behalf of both the parties before us and, in particular, on behalf of the appellants as regards the limitation and delay.  The respondents in their petition have made out a prima facie case for condonation of delay and if necessary, the respondents may file such documents as permissible in law to get the delay condoned” directed the CLB to hear the matter afresh.  Thus, in view of the Supreme Court upholding the decision of the Calcutta High Court that provisions of Limitation Act are applicable to the proceedings under Section 111, the said decision is binding on the CLB.  If so, then, the application for condonation of delay can be considered under Section 5 of the Limitation Act.  In regard to the application of this Section, the settled law as propounded by the Supreme Court in a number of cases is that the term “sufficient cause” in section 5 must receive liberal construction so as to advance substantial justice and generally delays in bringing the appeal are required to be condoned in the interest of justice, where no gross negligence or deliberate inaction or lack of bonafide is imputable to the parties seeking condonation of delay (G. Rame Gowda Vs. Land Acquisition Officer – AIR  1988  SC  897 ).  In the present case, since other than pleading that the petitioner ought to  have had the knowledge of the acquisition beyond 5% earlier than 28th June, 2000, the respondents have not established that the company had the knowledge earlier to that date or that the delay in filing the petition is deliberate or due to gross negligence.  Therefore, even in regard to condonation of delay, there is justification for the same and accordingly we do so.

25. One more aspect that we would like to note in regard to the knowledge is that we have seen various documents filed by the respondents like transaction statements etc. The respondents rely on these transaction statements to attribute knowledge to the company about holding of the shares by the respondents. These transaction statements pertain to individual shareholders indicating their shareholdings in various companies and not exclusively in the petitioner company alone. Therefore, to ascertain the holing in a particular company, one has to go through all the entries in the statement and find out whether a person holds shares in that company. Such a task can be undertaken only when a company knows  the identity of the person and suspects that such a person is cornering the shares of the company. Otherwise, it is an impossible task for the company to keep tract of the shareholdings of all the share holders in the Depository. That is the reason why  Regulation 7 requires disclosure. Therefore, when disclosure has been prescribed by the Regulations, one cannot claim, without making the disclosure, that the company, on its own, should derive knowledge of the acquisition. Therefore, on this ground alone, the plea of the respondents about attribution of  knowledge of the company from the records of the Depository, deserves to be rejected.

26.  The next argument of the learned counsel for the respondents is that in terms of Regulation 7, only an acquirer has to disclose and not those acting in concert. According to him the word ‘acquirer’ has been used in singular and there is no mention of ‘those acting in concert’ in Regulation 7 unlike Regulations 10 and 11. This argument, we feel is an after thought. If it is the understanding of the respondents, then here was no need for the 6th respondent to state in its alleged letter dated 16th March 2000 that its holding in the company with its associates had exceeded 5% (emphasis by us). The 1st respondent himself had admitted in his letter dated  19th Oct 2000 (page 31 of the reply) to the SEBI that all the respondents were acting in concert to acquire the shares in the company. The term ‘acquirer’ has been defined in   the Regulations in regulation 2(b) as ‘acquirer’mans any person who, directly r indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, whether by himself or with any person acting in concert. From the last line of the above, it is clear that  that the term ‘acquirer’ is an inclusive term covering the persons acting in concert also. Therefore, the use of the term in singular or the absence of the words ‘acting in concert’ in Regulation 7 does not mean that an acquirer need not include the shares of those acting in concert in computing the 5% limit. The acceptance of the contention of Shri Mookerjee would mean that each person acting in concert could acquire 4.99% shares without disclosure and continue to do so upto 14.99% without attracting the provisions of Regulation 10 relating to public offer.  Such an interpretation would defeat the very purpose of the Regulations framed in the interest of the shareholders at large. In Azzilfi Finlease and Investments (P) Ltd. Vs. Ambalal Sarabhai Enterprises Ltd. ( 2000  1 CLJ  118 )  relied on by the learned counsel, the complaint was that persons acting in concert had acquired shares beyond 10% without making open  offer as required under the Regulation in force. This plea was not accepted by the CLB as the company did not establish that the acquirers were acting in concert.  Therefore, if persons act in concert to acquire the shares of a company, all the shares acquired by them will have to be clubbed together for the purposes of Regulation 7. In this case, since on the admission of the 1st respondent himself that all the respondents were acting in concert, the aggregate holding of all the respondents will have to be considered in terms of Regulation 7.

27. Having held  that the respondents having acted in concert to acquire shares in the company were  bound to disclose, in terms of Regulation 7, once their aggregate holding crossed the limit of 5% with in four days of such crossing that limit we shall now examine as to whether they have done so.  Even though as we have already observed earlier, the respondents have not produced any consolidated statement before us on their shareholding as on 15th March 2000, according to the show cause notice dated 15.12.2000  issued by the SEBI to the 1st respondent, it is seen that the SEBI has held that the respondents had exceeded the limit of 5% on 15.3.2000 (including the shares in carry forward segment). Therefore, in terms of Regulation 7, disclosure should have been made by 19th March 2000. The respondents have relied on the letter of 16th March 2000 by the 6th respondent to the company  sent under certificate of posting in this regard even  though this letter does not mention that they had crossed the limit of 5% on the 15th March 2000. The receipt of this letter is denied by the company on oath. It has also alleged that the certificate posting produced by the 6th respondent is a fabricated one and that the said letter was never posted. Since, the company has affirmed on oath that it has not received the said letter, as held in the cases cited by the learned counsel for the petitioner, the onus of having posted the letter rests on the 6th respondent. The proof of having posted the letter is in the form of  a copy of the certificate of posting having the seal of  Dharamtala Post office dated 16.3.2000 and affidavits from two employees of the 6th respondent,  both dated 6th Feb 2001- one by Shri Jyoti Sharma affirming that he had prepared the letter dated 16.3.2000 and the other by Shri Subir Shrama affirming that he had posted that letter under certificate of posting from Dharamtala post office. Other than these, no other evidence has been furnished by the respondents like postage account, dispatch register etc, which, as has been observed by Madras High Court in Shoe Specialities Ltd case, would have more evidential value than the affidavits of paid  employees of a respondent. The statement of the respondents regarding the letter including the evidence furnished does not inspire much confidence. On the complaint of the company that the respondents had not complied with the requirements of Regulation 7, the SEBI  sent a letter to the 1st respondent on 26.7.2000 asking him to furnish various information/documents in connection with the acquisition of shares in the company. In serial number 4 of that letter the SEBI had asked “Confirm compliance with the provisions of the captioned regulations, more specifically-Reg. 7(1), along with copy of documentary evidence”. This letter was replied by the 1st respondent on 4th August 2000 (page 15 of the petition). In that letter, there is no reference, inspite of the specific query regarding compliance with Regulation 7,  to the letter of 16th March 2000. When the entire enquiry of the SEBI related to the compliance with the provisions of Regulation 7, any person of ordinary prudence, leave alone a business entity like the 6th respondent,  would have, at the first available opportunity,  referred to this letter and would have also enclosed copies of the letter and the certificate of posting, especially when the SEBI had also asked for documentary evidence. Rather, in that letter there is no reference to the shareholding on 15th March 2000, but only the shareholding as on 31.7.2000 was indicated. Only in the letter dated 29th August, the  1st respondent had annexed a copy of the said letter and a copy of the certificate of posting but not the affidavits from the employees, however without indicating the shareholding as on 15th March 2000. It is to be noted that by the time the letter of 29th August was sent, this petition complaining of non compliance with Regulation 7 and seeking rectification on that ground, had been sent  to the respondents by registered post on 24th August 2000 and appears to have also been received by the respondents before 29th August as is evident from the letter of M/Sandeep Agarwal &co,  Advocates, Mumbai,  dated 30.8.2000, stating  that they had been engaged to represent the respondents in the present proceedings. Therefore, the possibility of the letter of 16th March, having  been prepared  at a later date  cannot be ruled out. The learned counsel for the petitioner challenged the authenticity of the Certificate of posting on various grounds, with  which we are inclined to agree. The appearance of 3 seals of the post office against one address  is a glaring one  and as held in Basudeb Kataruka case (supra) the same has to be held as a fabricated one.  In regard to  the affidavits filed by the employees of the 6th respondents, we find that the same were not enclosed with the reply to the petition  nor in the application  for dismissal of the petition as time barred filed as late as on 8th January 2000. Since, these persons are paid employees of the 6th respondents and that these affidavits had not been obtained and filed at the earliest opportunity and  in the absence of  other corroborative evidence in the form postage account/dispatch register, these affidavits cannot be relied on and as such we reject the same. In regard to the letter of the 6th respondent to the Calcutta Stock Exchange, the same is  not only  irrelevant to the present proceedings, the same cannot be relied on in view of its authenticity having been challenged by the Exchange.  Thus, our conclusion is that there is no unrebuttable evidence that the said letter dated 16th March was posted.  In AIR 1918 PC relied on by the learned counsel for the respondents, the Privy Council  observed that letters proved to have been mailed will be presumed to arrive in the ordinary course of post. In the present case, we have found that the respondents have not proved that the letter dated 16.3.2000 was posted and  therefore the question of presuming the receipt of this letter by the petitioner does not arise. The decision in  Hemangini Dassee  Vs. Sarnalatika Dassee    ( AIR  1940  Cal. 227 ), relied on by the learned counsel for the respondents, wherein it was held that in case of a  UPC, presumption is that the letter was posted and reached the destination unless contrary is proved, no longer holds good with various decisions of the Apex Court that the said presumption is rebuttable.  Taking into  consideration, the observation of  the Apex Court in 1994 1 SCC (supra),  that the certificate of posting being easily obtainable, cannot be relied on,   in view of the facts of this case, we decline to draw the presumption, on the basis of the certificate of posting and the affidavits of the employees of the 6th respondents,  that the letter of 16th March 2000 was posted by the 6th respondent.

28. Even assuming that the said letter was posted, we have to examine  in view of the denial of receipt of the same by the company, whether, the requirements of Regulation 7 have been fulfilled. The said Regulation requires that an acquirer ‘shall disclose’ to the company.  Disclosure would be complete only when the person to whom the disclosure is made becomes aware of the same and is not complete by mere posting of the communication. The observation of the Courts in Ramanna V T.Jayaprakash (92 CC 517) and K.Narasimhiah V HC Singri Gowda    ( AIR 1996 SC 330) (supra) is directly applicable in this case. No doubt the Regulation does not prescribe any  mode of communication but usage of UPC to disclose information is unexplainable especially when there is no independent record available in the post office to evidence the delivery of a letter sent by UPC. In this connection, it is worthwhile noting that in his letter dated 15.9.2000 to the SEBI (page 19 of the reply), the 1st respondent had stated that “we have informed the Calcutta Stock Exchange Association Ltd even though it was not required as per law but by way of abundant caution we have done so”. A person who has observed abundant caution to do something which is not required by law, we feel, he  should have observed the same to do a thing which is mandated by law by ensuring that the disclosure was made by a mode which would ensure receipt of the same by the addressee.   Thus there is no evidence to show that the letter allegedly posted 0n 16th March 2000 was received by the company.

29.                        Further we also find  that the letter dated 16.3.2000 cannot be construed to be a ‘disclosure’ in terms of Regulation 7. The alleged letter dated 16.3.2000 reads “This is to inform you that our holding in your company with our associates have exceeded 5%. This is just for your information as required under SEBI Guidelines”. This information is not in conformity with the format prescribed by the SEBI according to which disclosure has to cover the name of the acquirer, shareholding before acquisition, shares acquired, the shareholding after acquisition, mode of acquisition, date of acquisition etc. Therefore, this letter  could never  be considered to be a disclosure in terms of Regulation 7. The purpose of disclosure under Regulation 7(1)  as is evident from Regulation 7(3) is to enable the company to disclose to all stock exchanges the aggregate number of shares held by the acquirer within 7 days of receipt of the information under sub regulation (1).   Such information, in the absence of full details as prescribed in the format,  in the alleged letter of 16th March 2000, could never have been given by the company to the stock exchanges. Therefore, even assuming that the said letter was posted and received by the company, since the same is incomplete and without relevant particulars,  it cannot be considered to be a valid disclosure in terms of Regulation 7.

30.                        Thus in view of our finding that  the letter of 16th March 2000 was not posted in view of absence of  unrebuttable evidence and that even otherwise, the company has denied the receipt of the same on oath and that the purported letter also cannot be considered to as a  valid disclosure in the absence of complete particulars, we hold that the respondents have not complied with the requirements of Regulation 7(1) of the Take Over Code.

31.                         The learned counsel for the respondents submitted that in view of free transferability of shares of a public company, and in view of the fact the Regulation 7 does not prohibit acquisition of shares, non disclosure cannot merit rectification of register of members. It is not that free transferability means an open ended right without any conditionalities. It has to be in conformity of relevant provisions of the statute. The very fact that proviso to Section 111A(2) authorizes refusal to register transfer of shares on sufficient cause and Section 111A(3) empowers the CLB to order rectification of register of members on the grounds specified in that Section, would indicate that free transferability resulting in acquisition of shares is not without restrictions. While these provisions protect the interest of the company, it also restricts the right to refuse registration of transfer except on sufficient cause. It is pertinent to note that when the obligation to disclose arose on 15.3.2000, the respondents had acquired only 5.3% but subsequently their acquisition increased to more than 12% within the next few months without making the public aware that someone was making substantial acquisition of  shares in the company.   Therefore, when Regulation 7 prescribes disclosure, the failure to do so would attract the provisions of Section 111A(3). In Nile Ltd  case, this Bench had approved the refusal to register transfer of shares since the acquirer had failed to comply with the requirements of Regulation 7. In that case, the shares were in physical form and  therefore  had to be lodged with the company for registration of transfer and as such the Board of the company could notice the contravention of the Regulation.  In the present case, the company did not have the opportunity of noticing the violation since, in a depository, the registration of transfer is instantaneous and without the intervention of the company. Therefore, when the company, after the transfer had taken place, notices the violation, it can invoke the provisions of Section 111A(3), which the company has done in the present case. Therefore we do not agree that for violation of Regulation 7, the provisions of Section 111A(3) cannot be invoked.

32.                        The next argument of the counsel for the respondents was that the powers of the CLB under Section 111 A(3) are discretionary and therefore even if there is contravention of Regulation 7, the CLB has discretion to reject the prayer for rectification.  For this argument, the usage of the word ‘may’ in that Section has been relied on. This has been contrasted with the word ‘shall’ used in the proviso to Section 111A(2). Whether the word ‘may’ is discretionary or mandatory would depend on the context in which the same is used. As per  Section 111A(3)   that the CLB is to exercise its powers when it is established that the transfer is “is in contravention or any of the provisions of the Securities Exchange Board of India Act 1992 or Regulations made there under or the Sick Industrial Companies (Special Provisions Act) 1985 or any other law for the time being in force” . A reading of this would show that the instances covered are all in respect of contravention of the provisions of a statute. It is a settled law that an act in contravention of a statute is null and void. Any judicial body holding that an act is in contravention of a statute, has to declare the same as null and void and if so, the word ‘may’ in Section 111A(3) has to be construed  as ‘shall’ . In other words, it is mandatory on the part of the CLB to order rectification of the register of members once it comes to the conclusion that any of the grounds in Section 111A(3) has been established. Since in the present case, disclosure beyond 5 % is required to be made in terms of Regulation 7 of the Take Over Code, which we have concluded, the respondents had failed to do, their acquisition beyond 5% has  to be held as invalid and the register of members has to be rectified.       

33.                          Shri Sarkar pointed out that the present shareholding of the respondents having come to below 5%, there could be no order for rectification while it was contended by Shri Chinoy that the acquisition being void ab-initio, order for rectification in respect of all shares should be ordered without disturbing the names of those to whom the shares have been transferred during the pendency of the present proceedings. It is to be noted that this petition was filed on the basis of the shareholding of the respondents at 5.7% as on 27.6.2000 as per the statement dated 6.7.2000 furnished by the Registrar. Only from the various statements filed by the respondents later on, it has come to light that they had acquired  more than 12% shares even as on 19.6.2000.  Once the contravention of the Regulation is established all the shares acquired in contravention will have to be declared as invalid and the register is to be rectified. But in the present case, the respondents have transferred substantial percentage of shares during the pendency of these proceedings and now their holding is below 5%. Since transfer of shares during the pendency of the proceedings is statutorily recognized by Section 111A(5), we cannot make any order in respect of the shares already transferred. The learned counsel  for the petitioner also prayed that the names of the respondents in respect of their present holding, even if it s below 5% should be deleted. On this prayer, he relied on Nile Ltd case wherein the CLB approved the decision of the Board of that Company to refuse registration of all shares. In that case, the shares were in physical form and that nearly 9.91% shares were lodged in one lot with the company for registration and no detailed information as to when and how the shares were acquired, either in one lot or at intervals had been furnished. Further, in that case, the CLB also found that the acquirer had contravened the provisions of Section 108A of the Companies Act. Therefore the CLB had approved the refusal to register all the shares. But in the present case, the share are dematerialized and instant registration takes place  immediately after transfer. The respondents have also furnished the details of their acquisition from December 1999 evidencing the acquisition in piecemeal. Therefore, no order can be passed  in regard to the shares below 5%. Further, in the present case, the provisions of Section 111A(3) have been invoked for acquisition of shares beyond 5% without disclosure and therefore, only shares acquired beyond that percentage would come under our purview in the present proceedings.  The petitioner has  not alleged that in the acquisition of shares below 5%  also, the respondents had violated the provisions of any statute. Therefore, there is no scope to consider the prayer of the petitioner to rectify the register of members with regard to present holding of the respondents which is below 5%.

34.                        Accordingly, we dispose of this petition by  declaring that the respondents, acting in concert, have contravened the provisions of Regulation 7 of the Take Over Code by not disclosing their acquisition beyond 5% shares in the company and that the register of members in respect of all shares acquired beyond 5% deserves to be rectified, but we are not doing so as the shares in excess of 5% have already been reportedly  transferred as permitted by Section 111A(5) during the pendency of the present proceedings.

 

 

(S.Balasubramanian)                                                       (A.K.Banerji)