Andhra Pradesh Mills Ltd. Vs. Pampasar Distilleries Ltd. - Court Judgment

Excerpt:
1. this is a petition filed under section 111(1) and (2) read with section 111a of the companies act, 1956 ('the act') against pampasar distillery ltd. ('the company') and others seeking registration of 6,32,209 equity shares covered by share certificate no. 31725 of the company in the name of the petitioner in the register of members of the company.2. the petitioner-company had given an inter-corporate deposit of rs. 1 crore to the third respondent on 12-7-1994 which was repayable by 9-10-1994. since the same was not repaid, the third respondent pledged the impugned shares of the company held in the name of the second respondent along with duly executed blank transfer forms. since inspite of repeated requests, the third respondent did not repay the inter-corporate deposit together with interest, the pledged shares were got transferred in the name of the petitioner-company and lodged for registration with the company on 23-2-1996. however, the company has failed to register the transfer of shares in the name of the petitioner and accordingly this petition has been filed.3. both the second and third respondents have filed replies, wherein according to the third respondent it had already filed a petition before the calcutta high court in terms of section 391 of the act and certain directions had been given by the calcutta high court in respect of the same, wherein the amount due to the petitioner also is involved and as such sought for deferring the hearing of the petition. the second respondent, in its reply, has, however, contended that the registration of transfer of shares in the name of the petitioner would be against the provisions of the securities and exchange board of india (substantial acquisition of shares and takeovers) regulations, 1994.4. when this petition was taken up for hearing, shri krishna srinivasan, advocate appearing for the first and third respondent pointed out that the impugned shares constitute nearly 19.45 percentage shares in the company and, therefore, in terms of regulation 10 of the takeover code, 1997, the first petitioner cannot get the shares registered in its name unless and until it makes a public offer, as it exceeds 15 per cent of the voting rights of the company. he also referred to 1994 regulations to point out that as per this regulation, acquisition of over 10 per cent shares in the target company, an acquirer should make public offer. he also submitted that even otherwise since the petitioner has tried to foreclose the pledge without notice to the third respondent, the same is also in violation of the relevant provisions of the act. he also pointed out that as per directions of the calcutta high court, the third respondent is negotiating with all its creditors who have given inter-corporate deposits, for a one-time settlement and, therefore, the claim of the petitioner will also be settled in due course. accordingly, he prayed for dismissal of the petition.5. shri harikrishnan, senior advocate appearing for the petitioner contended that the provisions of takeover code would come into play only when there is a voluntary acquisition of shares. in the present case, the petitioner never intended to acquire any shares in the company. its shares were pledged by way of security and only to ensure that the amount of inter-corporate deposit which remains unpaid for long period of time the petitioner proposed to get the shares transferred in its name for unloading in the market to realise its dues from the third respondent. therefore, the provisions of takeover code arc not applicable in respect of getting the pledged shares registered.as far as the foreclosing of the pledge without notice is concerned, he contended that once the third respondent handed over the share certificates along with blank transfer forms, it had already authorised the petitioner to deal with the shares once the default in repayment has taken place and, therefore, the question of giving any notice before foreclosure does not arise.6. we have considered the arguments of both the counsel. it is not disputed that the impugned shares constitute nearly 19.45 per cent of the voting rights in the company. since the shares were lodged for registration in the year 1996, i.e., before coming into force of the 1997 regulations, we have to go by the regulations of 1994. as per regulation 10, any acquirer who holds shares carrying 10 per cent or more voting rights cannot acquire further shares without making a public offer. regulation 3 exempts the application of the provisions of these regulations only in certain circumstances and acquisition by way of pledge is not one of the circumstances envisaged in the regulation 3. even 1997 code, in regulation 3(f)(iv) exempts acquisition by way of pledge by banks and financial institutions only in the ordinary course of business. thus, it is clear that acquisition of shares by way of pledge by the petitioner is not covered under any of the exempted categories. section 111a(3) authorises this board to rectify register of members in case of acquisition of shares by transfer in violations of the provisions and securities and exchange board of india act, 1992 or the regulations made therein. since the takeover code is a part of the regulations made under the sebi act, acquisition of shares in violation of the takeover code would be a ground for rectification of the register of members. this board has held in other cases that if a company refuses to register the transfer of shares on a ground which is covered under section 111a(3), then this board cannot order registration of transfer of shares. since it is evident that the petitioner cannot acquire more than 10 per cent as per the takeover code, 1994 code and 15 per cent as per 1997 code without a public offer and since the impugned shares constitute more than 19 per cent shares in the company, we cannot direct registration of the transfer of shares in favour of the petitioner. accordingly, we dismiss this petition.7. however, we also note the submissions of the learned counsel for the first and third respondent that the amount due to be paid to the petitioner would be settled in due course of time, which they may do as expeditiously as possible.

Judgment:
1. This is a petition filed under section 111(1) and (2) read with section 111A of the Companies Act, 1956 ('the Act') against Pampasar Distillery Ltd. ('the company') and others seeking registration of 6,32,209 equity shares covered by share certificate No. 31725 of the company in the name of the petitioner in the register of members of the company.

2. The petitioner-company had given an inter-corporate deposit of Rs. 1 crore to the third respondent on 12-7-1994 which was repayable by 9-10-1994. Since the same was not repaid, the third respondent pledged the impugned shares of the company held in the name of the second respondent along with duly executed blank transfer forms. Since inspite of repeated requests, the third respondent did not repay the inter-corporate deposit together with interest, the pledged shares were got transferred in the name of the petitioner-company and lodged for registration with the company on 23-2-1996. However, the company has failed to register the transfer of shares in the name of the petitioner and accordingly this petition has been filed.

3. Both the second and third respondents have filed replies, wherein according to the third respondent it had already filed a petition before the Calcutta High Court in terms of section 391 of the Act and certain directions had been given by the Calcutta High Court in respect of the same, wherein the amount due to the petitioner also is involved and as such sought for deferring the hearing of the petition. The second respondent, in its reply, has, however, contended that the registration of transfer of shares in the name of the petitioner would be against the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994.

4. When this petition was taken up for hearing, Shri Krishna Srinivasan, advocate appearing for the first and third respondent pointed out that the impugned shares constitute nearly 19.45 percentage shares in the company and, therefore, in terms of regulation 10 of the Takeover Code, 1997, the first petitioner cannot get the shares registered in its name unless and until it makes a public offer, as it exceeds 15 per cent of the voting rights of the company. He also referred to 1994 Regulations to point out that as per this Regulation, acquisition of over 10 per cent shares in the target company, an acquirer should make public offer. He also submitted that even otherwise since the petitioner has tried to foreclose the pledge without notice to the third respondent, the same is also in violation of the relevant provisions of the Act. He also pointed out that as per directions of the Calcutta High Court, the third respondent is negotiating with all its creditors who have given inter-corporate deposits, for a one-time settlement and, therefore, the claim of the petitioner will also be settled in due course. Accordingly, he prayed for dismissal of the petition.

5. Shri Harikrishnan, senior advocate appearing for the petitioner contended that the provisions of Takeover Code would come into play only when there is a voluntary acquisition of shares. In the present case, the petitioner never intended to acquire any shares in the company. Its shares were pledged by way of security and only to ensure that the amount of inter-corporate deposit which remains unpaid for long period of time the petitioner proposed to get the shares transferred in its name for unloading in the market to realise its dues from the third respondent. Therefore, the provisions of Takeover Code arc not applicable in respect of getting the pledged shares registered.

As far as the foreclosing of the pledge without notice is concerned, he contended that once the third respondent handed over the share certificates along with blank transfer forms, it had already authorised the petitioner to deal with the shares once the default in repayment has taken place and, therefore, the question of giving any notice before foreclosure does not arise.

6. We have considered the arguments of both the counsel. It is not disputed that the impugned shares constitute nearly 19.45 per cent of the voting rights in the company. Since the shares were lodged for registration in the year 1996, i.e., before coming into force of the 1997 regulations, we have to go by the Regulations of 1994. As per regulation 10, any acquirer who holds shares carrying 10 per cent or more voting rights cannot acquire further shares without making a public offer. Regulation 3 exempts the application of the provisions of these regulations only in certain circumstances and acquisition by way of pledge is not one of the circumstances envisaged in the regulation 3. Even 1997 Code, in regulation 3(f)(iv) exempts acquisition by way of pledge by banks and financial institutions only in the ordinary course of business. Thus, it is clear that acquisition of shares by way of pledge by the petitioner is not covered under any of the exempted categories. Section 111A(3) authorises this Board to rectify register of members in case of acquisition of shares by transfer in violations of the provisions and Securities and Exchange Board of India Act, 1992 or the regulations made therein. Since the Takeover Code is a part of the regulations made under the SEBI Act, acquisition of shares in violation of the Takeover Code would be a ground for rectification of the register of members. This Board has held in other cases that if a company refuses to register the transfer of shares on a ground which is covered under section 111A(3), then this Board cannot order registration of transfer of shares. Since it is evident that the petitioner cannot acquire more than 10 per cent as per the Takeover Code, 1994 Code and 15 per cent as per 1997 Code without a public offer and since the impugned shares constitute more than 19 per cent shares in the company, we cannot direct registration of the transfer of shares in favour of the petitioner. Accordingly, we dismiss this petition.

7. However, we also note the submissions of the learned counsel for the first and third respondent that the amount due to be paid to the petitioner would be settled in due course of time, which they may do as expeditiously as possible.