Ashim Kumar Banerjee, J. - (1.) The moot question involved in this appeal is whether the Take Over Code contemplates identical consequences in case of breach of Chapter II or Chapter III under Regulation 97.
(2.) Appellants held 14.12% shares in the company. The company in its meeting of the shareholders wanted to bring in an unaccounted sum as liability towards the company. Being aggrieved by that the present proceeding under sections 397 and 398 was filed by the appellants. The said sums surfaced when there was raid by the Income-tax Authorities on 6th August, 1998. The Income-tax Authorities found hidden income of Rs. 1 crore and directed payment of tax of Rs. 66.28 lac. The company had to pay the said sum. The management attempted to bring that liability in the accounts of the company to the detriment of the company and its shareholders. During the pendency of the section 397 proceeding the respondents made an application under section 111A(3) of the COMPANIES ACT, 1956, 1956 for rectification of its Shareholder Register by deleting the names of the appellants as according to them such transfer was in violation of the Take Over Code. In section 397 proceeding the management contended that since the very acquisition of shares was unlawful the proceeding under sections 397 and 398 was not maintainable. Company Law Board heard both the proceedings and by a common order allowed rectification and dismissed section 397 proceeding. Hence this appeal.
(3.) The Company Law Board while allowing rectification relied on their own judgment in the case of Bombay Dyeing, reported in 2002, Vol-I, Company Law Journal at page 347. According to the Board under Regulation 7 shares acquired beyond 5% would be invalid without compliance of the provision of the said regulation and Shareholder Register required rectification under section 111A(3).;