Read Time: 13 minutes

Synopsis

The Supreme Court recently noted that when the National Company Law Tribunal handles rectification proceedings under Section 59 of the Companies Act 2013, concerning the entry of names in a company’s Register of Members, it must look beyond the formalities of the application and assess the underlying factual issues to determine the substance of the case.

A bench of Justices Sanjiv Khanna and Sanjay Kumar said the expression ‘rectification’ connoted something that ought to have been done but, by error, was not done, or what ought not to have been done but was done, requiring correction. 

"The phrase ‘sufficient cause’ in Section 59 of the Act of 2013 is to be tested in relation to the statutory mandate thereof, i.e., anything done or omitted to be done in contravention of the Act of 2013 or the Rules framed thereunder," the bench said.

Referring to Ammonia Supplies Corporation (P) Ltd vs Modern Plastic Containers Pvt Ltd and others (1988), the bench pointed out that it has said that provisions relating to rectification give discretion to the Company Court to examine whether, under the garb of rectification, one is laying claim for an adjudication of such contentions and issues which do not fall within the realm of ‘rectification’ and consequently, within the jurisdiction of the Company Court. 

The bench also said it has been emphasized that the jurisdiction of the civil court or for that matter, any other forum, would be barred only when the subject matter of the dispute squarely falls within the domain and jurisdiction of the court/forum constituted under the provisions of the Act of 1956/Act of 2013. 

When and where the Act of 1956/Act of 2013 does not confer such exclusive jurisdiction on the court/forum constituted thereunder or the dispute falls outside the realm of that particular provision of the Act of 1956/Act of 2013, the jurisdiction of the civil court would not be completely barred, the court pointed out.

The bench also referred to Adesh Kaur vs Eicher Motors Limited and others (2018), this court observed that if, on facts, an open-and-shut case of fraud is made out and the person seeking rectification was the victim, the National Company Law Tribunal would be entitled to exercise such power under Section 59 of the Act of 2013. 

The top court allowed an appeal filed by Chalasani Udaya Shankar, Sripathi Sreevana Reddy and Yalamanchilli Manjusha under Section 423 of the Companies Act, 2013 against rejection of their plea.

The appellants sought rectification of the Register of Members of M/s Lexus Technologies Pvt Ltd, Vijayawada, Andhra Pradesh, by entering their names therein under Sections 59 and 88 of the Act of 2013, and to initiate action against Mantena Narasa Raju, Appa Rao Mukkamala and Suresh Anne, for oppression and mismanagement, apart from criminal proceedings under Sections 447 and 448 of the Act of 2013 for committing fraud.

After hearing the parties and going through the facts, the bench said, "In the present case, proper verification of the assertions made by the parties was a sine qua non. The Acting President of the NCLT, by failing to carry out the said exercise, failed to discharge the mandate of law. Exercise of power under Section 59 of the Act of 2013 is to be undertaken in right earnest by examining the material, evidence, and the facts on record. This has not been done. Rather, a narrow view was taken without calling upon respondent No. 2 to prove the veracity of the contrary story put forth by him, despite receiving monies from the appellants."

The court said the facts, material, and evidence had to be examined in the context of the underlying facts, which would have included the receipt of monies, the signatures on the transfer deeds, etc. Needless to state, questions of fact must be decided on the principle of preponderance of probabilities, giving due weight to the specific facts, as found, so as to draw the conclusion that a reasonable person, acquainted with the relevant field, would draw on the basis of the same facts, the bench said.

"Neither the Acting President of the NCLT nor the NCLAT examined, with any seriousness, the issues raised before them to come to a cogent conclusion as to whether the disputes raised by the respondents were mere moonshine," the bench said.

In the case, the court noted another crucial fact that the interim order passed on June 27, 2019 by the Member (Judicial) of the NCLT had indicated, in clear terms, the issues that arose for consideration and the inquiry required to determine the same. 

However, ignoring the said interim order, the Acting President of the NCLT chose to summarily dismiss the petition, without considering the material already placed on record and without further evidence being adduced. The documents that were referred to and attached to the Company Petition and the appellants’ rejoinder were glossed over or were completely ignored, bench opined. 

"Compounding the error of the Acting President of the NCLT, the NCLAT did not even get the facts right. Production of the original share certificates by the appellants and their argument, relying on Section 46 of the Act of 2013, that the signatures thereon by two Directors was sufficient in the eye of law, was totally lost sight of by the NCLAT," the bench said.

It also noted further that the NCLAT blindly accepted the story put forth by respondent No. 2 to such an extent that it totally overlooked the fact that it was the appellants who had paid Rs 14,66,39,400 to respondent No. 2. 

Neither the NCLT nor the NCLAT chose to labour over the actual issues for consideration by looking at the documentary evidence already placed on record or by calling for further evidence in that regard, the court said.

Allowing the appeal, the court restored the petition to the file of the National Company Law Tribunal, Amaravati bench, for consideration afresh on merits and in accordance with law, upon proper appreciation of evidence. 

"Given the passage of time since the institution of the petition, we would request the National Company Law Tribunal, Amaravati Bench, to give priority to the same and endeavour to dispose it of as expeditiously as possible," the bench said.

Case Title: Chalasani Udaya Shankar and others v. M/s. Lexus Technologies Pvt. Ltd. and others