NCLT does not exercise parallel jurisdiction with SEBI for violations of insider trading regulations: Supreme Court

The Supreme Court on Wednesday ruled that it was not permissible to circumvent the role of the Securities and Exchange Board of India (SEBI) by asking for a rectification under Section 111A of the Companies Act, 1956, when examining a transaction for alleged insider trading. (IFB Agro Industries Limited v. SICGIL India Limited and ors).A Bench of Justices AS Bopanna and PS Narasimha made it clear that the National Company Law Tribunal (NCLT) under Section 59 of the Companies Act, 2013 does not exercise a parallel jurisdiction with SEBI for addressing violations of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015."The scrutiny and examination of a transaction allegedly in violation of the SEBI (PIT) Regulations will have to be processed through the regulations and remedies provided therein. When Constitutional Courts are called upon to interpret provisions affecting the exercise of powers and jurisdictions of these regulatory bodies, it is the duty of such Courts to ensure that transactions falling within the province of the regulators are necessarily subjected to their scrutiny and regulation. This will ensure that the regulatory body, charged with the duty to protect the consumers has real time control over the sector, thus, realizing the purpose of their constitution."The judges explained that transactions falling within the jurisdiction of regulatory bodies created under statutes must necessarily be subjected to their ex-ante scrutiny, enquiry and adjudication..The Court was hearing an appeal arising out of a judgment of the National Company Law Appellate Tribunal (NCLAT) that had set aside a ruling of the NCLT which had allowed the appellant-company's petition under Section 111A of the 1956 Companies Act for rectification of its Members' Register.While allowing the petition, the NCLT had directed the petitioner to buy back its shares that had been held by the present respondents.The NCLAT had set aside this direction on the ground that the Tribunal exceeded its jurisdiction..Before the top court, Senior Advocate P Chidambaram, appearing for the appellants, submitted that the SEBI Act must be read in consonance with the Companies Act. Senior Advocate Shyam Divan, appearing for the respondents, submitted that the Section 111A application was an abuse of process, pointing out that the same had did not allege any violation of the SEBI's Substantial Acquisition of Shares and Takeover Regulations. .The Court at the outset formulated the following questions of law for adjudication:What is the scope and ambit of Section 111A of the 1956 Act, as amended by Section 59 of the 2013 Act, to rectify the register of members? Which is the appropriate forum for adjudication and determination of violations and consequent actions under the SEBI (SAST) Regulations 1997 and the SEBI (PIT) Regulations 1992?.On the first question, the Bench stated that the rectificatory jurisdiction of the NCLT under Section 59 of the 2013 Companies Act is summary in nature. Further, the same is not to be exercised when the facts and questions are contested/disputed."Sub-section (3) of Section 59 recognizes the overarching right to hold and transfer securities with the concomitant entitlement of voting. This is a precious right, and that is the reason why the Parliament found it necessary to caution that the provision of this Section shall not restrict the right of a holder of securities, to transfer such securities. This is another feature which is indicative of the limited scope and extent of the power of rectification of the register." .The judges began answering the second question by discussing the role and necessity of regulators."Public administration is dynamic and ever-evolving. It is now established that governance of certain sectors through independent regulatory bodies will be far more effective than being under the direct control and supervision of Ministries or Departments of the Government. Regulatory control by an independent body composed of domain experts enables a consistent, transparent, independent, proportionate, and accountable administration and development of the sector."Such regulation, the top court explained, is achieved through laws establishing independent regulatory bodies with specified powers and functions and possessing a combination of legislative, executive, and judicial features. Further, regulators are impressed with a statutory duty to safeguard the interest of consumers and other stakeholders.Outlining the many powers and responsibilities of the SEBI, the bench stated that,"...procedure cannot be short-circuited by making an application under Section 111A of the 1956 Act on the ground that there exists parallel jurisdiction with the SEBI and CLB/Tribunal. The transaction complained of must suffer scrutiny by the regulator, and it is only for the regulator to determine a violation of the provisions of the SEBI Act and the Regulations...the Appellant is not justified in invoking the jurisdiction of the CLB [Company Law Board] under Section 111A of the Act for violation of SEBI regulations.".The Court thus upheld the NCLAT order and dismissed the appeal..[Read judgment]