Purchase of minority shareholding to be done only in specific events: NCLAT

Purchase of minority shareholding to be done only in specific events: NCLAT

The National Company Appellate Law Tribunal (“NCLAT”) in the case of S. Gopakumar Nair (“Appellant”) v. OBO Bettermann India Pvt. Ltd. (“Respondent”) held that purchase of minority shareholding is to be done only in the event of amalgamation, share exchange, conversion of securities and other similar circumstances. NCLAT highlighted that “other similar circumstances” should be interpreted as events of the same nature as amalgamation, share exchange, or conversion of securities.

The Appellant initially filed a petition at the National Company Law Tribunal (“NCLT”) against the Respondent on the ground that OBO Betterman Holding Germany (“OBO Germany”) who was a shareholder with 99.64% shareholding in the Respondent company issued notice to acquire the Appellant’s 0.36% shareholding (minority shareholding) without their consent. The NCLT dismissed the Petition stating that the Appellants did not hold any shares in OBO India after OBO Germany had acquired the minority shareholding and hence was ineligible to approach the Tribunal.

The matter was appealed before the NCLAT where the fact that OBO Germany forcibly purchased the minority shareholding was noted. NCLAT has also held that shares of a minority shareholder cannot be cancelled under provisions of Companies Act, 2013 in the absence of valuation by a registered valuer and not by a Chartered Accountant.

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NCLT’s decision highlights the importance of reading a provision as a whole in light of the preceding and subsequent words and not selectively. The specific events listed in a provision communicates the Legislature’s intention as to the kind of events which should fall under the ambit of “other similar circumstances” and eliminates any ambiguity in interpretation.

Disciplinary Proceedings initiated by IBBI to not be quashed by NCLT: NCLAT

The National Company Appellate Law Tribunal (“NCLAT”) in the case of Insolvency and Bankruptcy Board of India (“IBBI”) v. Shri Rishi Prakash Vats (“Respondent”) held that once a disciplinary proceeding is initiated by IBBI on the basis of evidence on record, the IBBI is the disciplinary authority responsible for closing proceeding or pass appropriate orders. The NCLAT stated that this rule is applicable even in instances when the disciplinary proceeding (“proceeding”) is initiated by IBBI on National Company Law Tribunal’s (“NCLT”) recommendation.

In the current matter, the Corporate Insolvency Resolution Process (“CIRP”) was initiated by the Corporate Debtor. Subsequently, the NCLT brought the financial creditor’s (“Respondent”) complacency to IBBI’s notice to take appropriate action. IBBI accordingly initiated proceedings against the Respondent. The Respondent filed an explanation stating reasons for delay in execution of the CIRP with the NCLT and this information was relayed to IBBI on the expectation that the proceedings will not further be required. When IBBI continued with the proceedings, the NCLT ordered the IBBI to quash the proceeding. IBBI appealed to the NCLAT to determine whether NCLT has the jurisdiction to quash IBBI’s proceedings.

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The IBBI becomes the Disciplinary Authority which is empowered to close proceedings or pass appropriate orders once disciplinary proceedings are initiated. The orders passed by any other adjudicating authority has no effect on the proceedings itself.

Draft Rules regarding duration of license notified under Drugs and Cosmetics Rules

A notification of draft rules was issued by the Ministry of Health and Family Welfare to amend the Drugs and Cosmetics Rules, 1945. The draft rules propose an increase in the duration of licenses issued under the Act.

Licenses issued under specific forms will remain valid if the licensee deposits a fee to retain the license before its expiry. This is to be done every five years from the date of the license’s issue or subsequent renewal. The licensee is expected to pay the retention fee and a late fee if there is delay up to six months from the last day of its validity, after which, the license will be cancelled.

The same rule is applicable to loan license as well. A loan license is issued to applicants who do not have their own arrangements for manufacture but avails such facilities by other manufacturing units.

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If the draft rules were to be incorporated in the scheme of the Drugs and Cosmetics Rules, there will be absolute clarity regarding the administrative process of license renewal to licensees.

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Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.


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