Summary
The Supreme Court set aside concurrent NCLT and NCLAT orders dismissing a petition for rectification of a company's register of members and for relief against oppression and mismanagement. The forums had summarily rejected the petitioners' claim to have bought 94.8% of the shares, ignoring the transfer deeds, share certificates, undisputed payments and the NCLT's own detailed interim order, and accepting the transferor's disputed version without proof. The Court explained the scope of jurisdiction under Section 59 of the Companies Act, 2013 and remitted the petition for fresh decision on evidence.
Issues
- What is the scope of the NCLT's jurisdiction to rectify the register of members under Section 59 of the Companies Act, 2013 where fraud and forgery are alleged, and when must parties be relegated to a civil court.
- Whether the NCLT and NCLAT properly decided the petitioners' claim of share transfer, the issue of limitation and their locus without examining the material on record.
Provisions considered
- Section 59, Companies Act, 2013Rectification lies where a name is entered or omitted without sufficient cause; 'sufficient cause' is tested against anything done or omitted in contravention of the Act or Rules. The NCLT must look past the form of the application to the substance and decide whether the dispute truly concerns rectification, examining the material and evidence in earnest. (¶¶ 23, 32, 34, 35)
- Section 430, Companies Act, 2013The bar on civil courts applies only where the subject matter squarely falls within the Tribunal's jurisdiction; where the Act confers no exclusive jurisdiction or the dispute lies outside the relevant provision, civil court jurisdiction is not wholly barred. Shashi Prakash Khemka and IFB Agro were held not to conflict. (¶¶ 28, 33)
- Sections 155, 111 and 111A, Companies Act, 1956Traced as the predecessors of Section 59; the principles in Ammonia Supplies on the summary but exclusive rectification jurisdiction under these provisions were applied to Section 59. (¶¶ 23, 24, 25, 31)
- Rule 70(5), National Company Law Tribunal Rules, 2016Noted as dealing with rectification along with Section 59 and as in pari materia with Section 111(7) of the Companies Act, 1956. (¶ 23)
- Section 46, Companies Act, 2013The appellants' reliance on Section 46, arguing that signatures of two directors on the share certificates sufficed, was wholly overlooked by the NCLAT along with the production of the original certificates. (¶ 36)
Held
- Rectification connotes correcting something that ought to have been done but by error was not, or ought not to have been done but was. The NCLT under Section 59 must examine the substance of the dispute; if it truly concerns rectification or its peripheral aspects, its jurisdiction is exclusive, but if the claim rests on seriously disputed questions of title or other matters outside rectification, it may relegate the parties to a civil court or the appropriate regulator (applying Ammonia Supplies, Standard Chartered Bank, Jai Mahal Hotels and IFB Agro). (¶¶ 24, 25, 26, 31, 32)
- There is no conflict between Shashi Prakash Khemka, which relied on Section 430 to hold the civil court barred, and IFB Agro: the jurisdiction of the civil court or any other forum is barred only where the dispute squarely falls within the domain of the forum created under the Companies Act. Where an open-and-shut case of fraud against the person seeking rectification is made out, the NCLT may rectify even if criminal proceedings are pending (Adesh Kaur). (¶¶ 27, 28, 33)
- Power under Section 59 must be exercised in right earnest by examining the material, evidence and facts on record, deciding questions of fact on preponderance of probabilities; the forum must determine whether objections raised to defeat rectification are genuine or mere moonshine. The NCLT failed to do so and did not call upon the transferor to prove his contrary story despite his admitted receipt of moneys from the petitioners. (¶¶ 34, 35)
- The NCLT's final order ignored its own detailed interim order identifying the issues needing inquiry, disposed of limitation, a mixed question of fact and law, in a cryptic manner, and rejected the share transfer as unsupported by any document contrary to the transfer forms, share certificates and correspondence on record. (¶¶ 10, 12, 13, 14, 15, 36)
- The NCLAT compounded the error by getting the facts wrong: it held the money was not paid by the appellants though the payers it named were the appellants themselves (or a joint account holder), treated the transferor's disputed account as established, decided limitation merely from the dates of purchase and filing, and wrongly recorded that original share certificates had not been produced. (¶¶ 17, 18, 36)
Result
Appeals allowed; the NCLT and NCLAT judgments set aside; the company petition restored to the NCLT, Amaravati Bench, for fresh decision on merits on proper appreciation of evidence, with a request for priority and expeditious disposal; parties to bear their own costs.