Supreme Court of India
Chalasani Udaya Shankar vs M/S Lexus Technologies Pvt. Ltd on 9 September, 2024
Author: Sanjay Kumar
Bench: Sanjay Kumar
2024 INSC 671 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 5735-5736 of 2023
Chalasani Udaya Shankar and others … Appellants
Versus
M/s. Lexus Technologies Pvt. Ltd. and others … Respondents
J U D G M EN T
SANJAY KUMAR, J.
1. Orders alike, dismissing their claims, having been passed by
the original and appellate forums, Chalasani Udaya Shankar, Sripathi
Sreevana Reddy and Yalamanchilli Manjusha are in appeal under Section
423 of the Companies Act, 2013 [for brevity, ‘the Act of 2013’].
2. The appellants had approached the National Company Law
Tribunal, Hyderabad/Amaravati Bench [for brevity, ‘the NCLT’], by way of
Company Petition No. 667/59 & 241/HDB/2018, seeking rectification of the
Register of Members of M/s. Lexus Technologies Pvt. Ltd., Vijayawada,
Signature Not Verified
Andhra Pradesh, respondent No.1, by entering their names therein under
Digitally signed by
babita pandey
Date: 2024.09.09
16:32:41 IST
Reason:
Sections 59 and 88 of the Act of 2013, and to initiate action against
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Mantena Narasa Raju, Appa Rao Mukkamala and Suresh Anne,
respondent Nos. 2,3 and 4, for oppression and mismanagement, apart from
criminal proceedings under Sections 447 and 448 of the Act of 2013 for
committing fraud.
3. Their case, as set out in the Company Petition, was as follows:
M/s. Lexus Technologies Pvt. Ltd. was incorporated under the provisions of
the Companies Act, 1956, on 28.03.2000. Its authorized share capital was
₹1,50,00,000/-, divided into 15,00,000 equity shares of ₹10/- each. The
issued, subscribed and paid-up capital of the company was ₹1,10,96,230/-,
divided into 11,09,623 equity shares of ₹10 each. The company is in the
business of software development and ancillary activities and it acquired
land at Chinnakakani Village in Guntur District in January, 2002, for
establishing its infrastructure. On 09.03.2004, Mantena Narasa Raju,
respondent No.2, had entered into a share purchase agreement with one
C. Suresh, shareholder of the company, and acquired 10,51,933 equity
shares, representing 94.8% of the equity share capital of the company.
Thereafter, Mantena Narasa Raju and Appa Rao Mukkamala, respondent
Nos. 2 and 3, were appointed as Directors of the Company on 02.03.2004.
Suresh Anne, respondent No.4, became a Director of the company on
30.09.2004. While so, on 18.04.2015, the appellants acquired the equity
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shares held by Mantena Narasa Raju, respondent No.2, i.e., 10,51,933equity shares, by executing Securities Transfer Deeds in Form No. SH-4.
Chalasani Udaya Shankar, appellant No.1, acquired 3,51,933 equity
shares, representing 31.72% of the shareholding, while Sripathi Sreevana
Reddy, appellant No.2, and Yalamanchilli Manjusha, appellant No.3,
acquired 3,50,000 equity shares each, representing their 31.54% individual
shareholding. Share certificates were issued to them, signed and
authenticated by Appa Rao Mukkamala and Suresh Anne, respondent Nos.
3 and 4. The appellants claim to have paid consideration of
₹14,67,41,557/- to Mantena Narasa Raju, respondent No.2, towards the
acquisition of their shares – Chalasani Udaya Shankar, appellant No.1, paid
₹4,90,91,557/- while Sripathi Sreevana Reddy and Yalamanchilli Manjusha,
appellant Nos.2 and 3, each paid ₹4,88,25,000/- individually.
4. It is the further case of the appellants that they shared a very
congenial and cordial relationship with Mantena Narasa Raju, Appa Rao
Mukkamala and Suresh Anne, respondent Nos.2, 3 and 4, and they left the
complete managerial control with them despite being the majority
shareholders. They claim that they had no suspicion whatsoever against
the said persons, but due to their failure in conducting Annual General
Meetings during the financial years 2014-15, 2015-16 and 2016-17, the
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Registrar of Companies struck off the name of M/s. Lexus Technologies
Pvt. Ltd. from the Register of Companies on 21.07.2017, in exercise of
power under Section 248 of the Act of 2013. The appellants claim that, it
was only upon browsing the online portal, they came to know that the said
persons had thereafter filed annual returns and financial statements for the
years in question with false information, by erasing their shareholding from
the records of the company. The appellants allege that the aforesaid
persons committed various acts of oppression with the intention of grabbing
the company property. They, accordingly, prayed for rectification of the
Register of Members of the company, by entering their names, and to
initiate appropriate action against respondent Nos. 2, 3 and 4. Allegations
were also made against V. Vasudev Reddy, respondent No.5, the
Chartered Accountant associated with the company, to the effect that he
was a co-conspirator and action was sought against him. The appellants
also sought various interim reliefs pending disposal of the Company
Petition. In the first instance, the NCLT directed status quo to be maintained
as regards the company’s assets and invited objections from the other side.
5. The company, respondent No.1, filed a counter opposing the
grant of interim reliefs. Therein, it contended that the appellants could not
allege oppression and mismanagement as they were not members of the
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company and were, in fact, seeking rectification of the Register of Members
in that regard. The transfer of shares, as claimed by the appellants, was
denied and, in consequence, their locus to maintain the company petition
was challenged. Issue of limitation was also raised as the appellants’ claim
was that they had acquired the shares on 18.04.2015 but the company
petition was filed only on 09.11.2018, i.e., after the lapse of over three
years. The company alleged that it had received emails from respondent
Nos. 3 and 4 stating that the appellants had forged their signatures on the
purported share certificates and the company asserted that the NCLT
would have no jurisdiction to adjudicate such allegations of fraud and only
the competent civil court could decide the same.
6. A reply was also filed by Mantena Narasa Raju, respondent
No.2, contesting the interim reliefs sought. While reiterating the contentions
of the company in its counter, he disputed the appellants’ ownership of the
shares. He asserted that he never sold any shares to the appellants and
that they were complete strangers to him. He claimed that he had borrowed
a sum of ₹5.66 crore from one L. Ramesh, his friend, who agreed to lend
him the money through banking channels, by arranging for a total sum of
₹14.66 crore, out of which he would take back ₹9 crore and the balance
₹5.66 crore could be retained by respondent No.2. He further claimed that
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L. Ramesh arranged for his known persons to remit the amounts in his
bank account and it was in this context that the appellants deposited the
total sum of ₹14,66,39,400/- in his account. He further claimed that he
returned the sum of ₹9 crore, as per the instructions of L. Ramesh, to one
Swarna Bhaskar H. (₹7.5 crore) and to one Venkata Surya R ( ₹1.5 crore),
i.e., in all, ₹9 crore. He further claimed that L. Ramesh forcibly obtained his
signatures on several documents, including white papers, letter heads,
blank non-judicial stamp papers and green sheets, at that time. He alleged
that those blank papers might have been handed over to the appellants by
L. Ramesh and they fabricated the documents. He pointed out that the
share transfer deeds put forth by the appellants projected a total
consideration of ₹14,67,41,557/-, but only the sum of ₹14,66,39,400/- had
been remitted, leaving a balance of ₹1,02,157/-. He also alleged that the
format of the appellants’ share certificates was not that of the company and
the folio numbers therein were different, indicating that they had been
fabricated by the appellants.
7. The appellants filed separate rejoinders to the replies filed by
respondent Nos. 1 and 2. Therein, they reiterated their claims and asserted
that their petition was within time. They denied the financial transactions
allegedly arranged by L. Ramesh and the alleged fabrication of documents
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by them. They pointed out that the signature of respondent No.2 appeared
in the share transfer forms at the correct place, manifesting that the same
were not fabricated on signed blank papers. As regards the shortfall in the
consideration, they asserted that a portion of the stamp duty on the transfer
was to be borne by respondent No.2 and it was accordingly adjusted,
leading to the lesser sum of ₹14,66,39,465/- being paid.
8. Thereupon, the NCLT, through the Member (Judicial), passed
an interim order on 27.06.2019. Having considered the matter, the NCLT
noted as follows: Respondent No.2 had addressed letter dated 29.12.2014
(Annexure A-1) to the Board of Directors of the company expressing his
intention to sell his shareholding therein. A Board Meeting was held on
24.01.2015 to consider his request and it was found that there was no
buyer within the existing shareholders who was willing to purchase the
shares of respondent No. 2. This was stated to have been communicated
to respondent No.2 leaving it open to him to make his own arrangement for
sale of his shares to outsiders. It was in these circumstances that the
appellants purchased the shares of respondent No.2. By e-mail dated
20.04.2015 (Annexure A-4), respondent No.3 sought the approval of the
other shareholders for sale of these shares in favour of the appellants. A
meeting was held on 27.04.2015 in this regard and share certificates were
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also issued on the said date to the appellants. These share certificates
were signed by respondent Nos. 3 and 4 as Directors of the company. It
was noted that respondent No. 2 had contested this claim, by asserting that
respondent Nos. 3 and 4 were not even in India on the said date and that
the share certificates were fabricated. Various discrepancies were pointed
out by him in the said certificates, including absence of the signature of the
company secretary. The NCLT, however, noted that respondent No.2 did
not dispute the receipt of monies from the appellants. Further, the NCLT
also noted that respondent No.2 did not dispute his signatures appearing in
the share certificates and share transfer forms but his attempt was to
explain the same, by claiming that L. Ramesh had obtained blank papers
from him which had been misused. Noting the details of the financial
transactions sought to be put forth by respondent No.2 in relation to the
receipt of ₹14.66 crore, the NCLT observed that this aspect needed to be
probed as the undisputed fact remained that the said sum was remitted into
the account of respondent No.2. The NCLT observed that it was necessary
to go into the issue as to whether this amount was actually remitted at the
instance of L. Ramesh as there was no evidence at that point of time in
proof of the claims of respondent No.2 in that regard. The NCLT noted that
it was a question to be enquired into as to whether respondent No.2 has
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returned ₹5.66 crore, which he claimed to have received as a loan, and this
was a question to be thoroughly looked into during a full inquiry. The NCLT
further noted that on the strength of these oral contentions, it was not
possible to accept at that stage that the said monies were given to him only
as a loan and not for the sale of his shares. His further claim that he had
signed various blank papers, judicial stamp papers, letter heads, etc. also
required to be examined at the time of final disposal of the matter. It was
noted that respondent No.2 was a doctor by profession. The NCLT went on
to observe that Form SH-4 was a printed form, as were the share
certificates, and it was not believable that the same could have been
fabricated on signed blank papers. Dealing with the contention that
respondent Nos. 3 and 4 were not even in the country on the date in
question, the NCLT noted that none had appeared on their behalf and they
had not chosen to file any counter in support of the stand taken by them. As
on that date, per the NCLT, respondent No.2 relied upon the
communication allegedly received by him from respondent Nos. 3 and 4,
but the authenticity of the same still remained to be proved, as respondent
Nos. 3 and 4 had not filed any affidavit. The NCLT also noted that there
were conflicting materials produced by both sides and at that stage, it could
not be decided whether the signatures in the share certificates did not
9
belong to respondent Nos. 3 and 4 and the issue required to be thoroughly
examined at the time of final hearing.
9. Dealing with the issue of limitation, the NCLT observed that the
case of the appellants was that they came to know of their names being
excluded only after the company filed financial accounts and statements for
the years 2014-15, 2015-16 and 2016-17, and the petition was filed within
three years from the date of such knowledge. Opining that limitation was a
mixed question of fact and law, the NCLT stated that it needed to be
examined at the final hearing stage, after the parties filed all their
documents. The NCLT also rejected the contention of the respondents that
it had no jurisdiction to try the petition as it involved issues of fraud, etc.
The NCLT, therefore, observed that an interim order restraining the
company and respondent Nos. 2 to 4 from either disposing of or creating
encumbrances over the assets of the company would not affect either of
the parties, pending disposal of the main petition, and accordingly granted
an interim order to that effect.
10. This being the tone and tenor of the NCLT’s interim order, the
final order dated 21.08.2021 passed by the NCLT, dismissing the Company
Petition, makes for an interesting reading. Be it noted that the interim order
was passed by the Member (Judicial) of the NCLT and the final order came
10
to be passed over two years later by its Acting President. Significantly, no
reference whatsoever was made to the 46-page interim order in the body of
the final order. It is as if the Acting President of the NCLT was completely
oblivious of what had transpired in the matter earlier, though a passing
reference was made by him to an interim order passed on 22.10.2019,
impleading three more respondents in the Company Petition.
11. Respondent Nos. 1 and 2 again filed counters in the main
Company Petition essentially replicating the stands taken by them in their
earlier counters. The appellants also filed their rejoinder thereto along with
several documents. Having referred to the facts, as set out in the Company
Petition, the Acting President of the NCLT noted that separate counters had
been filed by respondent Nos. 1 and 2, on the one hand, and by the newly
impleaded respondent Nos. 8 to 10, who claimed independent rights in the
same shareholding. Respondent Nos. 3 and 4 had filed Memos adopting
the counter filed by the company, respondent No.1. Perusal of the
judgment dated 21.08.2021 reflects that the Acting President of the NCLT
extracted the gist of the pleadings of the parties and went on to reproduce
the caselaw cited by them at great length. His actual findings commence
from paragraph 9 at page 60 of his 67-page order. The points that fell for
consideration were set out by him in paragraph 9.1, which reads as under:
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‘(1) Whether the Petition filed is well within the time.
(2) Whether purported transfer of shares is in accordance
with the provisions of the Companies Act and in accordance
with clauses of the Articles of Association.
(3) Whether the amount purportedly paid should be treated
as consideration to the shareholders of the Company, by the
Petitioners.
(4) Whether the share certificates purportedly issued to the
Petitioners are genuine.
(5) Whether any relief can be granted to the Petitioners or
whether the petition is maintainable.’
12. On the issue of limitation in point No.1, the Acting President
baldly summed up that filing of the petition by the appellants was an
afterthought and, therefore, the question of limitation did not arise, as the
petition was not filed within the limitation period of three years. This cryptic
approach in para 9.2 was not in keeping with the observation of the
Member (Judicial) of the NCLT in the interim order that limitation, being a
mixed question of law and fact, required to be examined fully.
13. On point No.2, the Acting President rejected the case of the
appellants, by way of brief para 9.3, completely ignoring the points set out
by the Member (Judicial) in the interim order and the material placed on
record, such as the share transfer forms, share certificates and emails/
correspondence, which supported the case of the appellants. His
12
categorical finding that ‘not a single document existed between the parties
to show that there was a transfer of shares and not a single document was
filed to show that the existing shareholders were given an opportunity to
buy the shares’ was clearly contrary to the material available on record,
viz., the emails, transfer forms, share certificates, etc. No doubt, the
genuineness of these documents required to be verified but without even
venturing to do so, they could not have been dismissed thus.
14. As regards point No.3, the Acting President observed that there
was no covering letter or correspondence to support the claim that the
amount transferred into the account of respondent No.2 was for purchase
of shares. He noted the discrepancy in the sale consideration amount to
the extent of ₹1,02,157/- and the claim of respondent No.2 that one
L. Ramesh was also involved. He then went on to surmise that there were
some other transactions between the parties and the company had been
entangled in the dispute for reasons best known to the parties. On that
basis, he strangely concluded that it could not be accepted that the monies
transferred into the account of respondent No.2 were for purchase of
shares. The version put forth by respondent No.2, as rightly pointed out in
the interim order, required to be proved and could not have been taken to
be the truth straightaway in this abrupt and self-serving manner.
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15. As regards point No.4, the Acting President opined that the
appearance of the share certificates was dubious and the numbers therein
were also completely different. He held that, without going deep into the
aspect, it could be concluded that the share certificates were not genuine
and were fabricated. Again, no evidence whatsoever was led or considered
on the issue. Surprisingly so, as the appellants produced the original share
certificates given to them along with their rejoinder and filed applications for
production of the original record of shareholders of the company and their
share certificates of 2004, Board Resolutions, Minutes of Meetings, etc.
16. On point No.5, the Acting President concluded that the
appellants had failed to prove their case and had not bothered to realize
their rights as shareholders, if at all they had considered themselves to be
so. He observed that the very manner and conduct of the appellants
indicated that the transaction which seems to have taken place between
the parties was completely different, without involving the company, and for
no reason, the company had been entangled in the dispute. The case of
the appellants was held to be fraudulent in nature and devoid of fact and
law. He, accordingly, dismissed the case with costs of ₹5,00,000/-.
17. Aggrieved by the dismissal of their petition, the appellants
approached the National Company Law Appellate Tribunal, Chennai Bench
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(NCLAT), by way of Company Appeal (AT) (CH) No. 44 of 2021. They also
filed I.A. No. 548 of 2021 therein for interim relief pending its disposal.
However, the NCLAT dismissed their appeal and I.A. by judgment dated
10.04.2023. Speaking for the Bench, the Member (Technical) referred to
the facts of the case; the contentions of the parties; the points for
consideration set out by the NCLT and its findings thereon. Thereafter, the
relevant provisions of the Act of 2013 were extracted at length and again,
reference was made to the contentions of both sides. Having done so, the
NCLAT curiously concluded that L. Ramesh had remitted through his
‘known persons’ the sum of ₹14,66,39,400/- into the bank account of
respondent No. 2. The NCLAT then strangely observed as follows:
‘First of all, the money has not been transferred by the
‘Appellants’ in favour of the ‘Respondents’. Secondly, as admitted
in the averments as well as recorded clearly in the ‘impugned
order’ that, Mr. Lingamaneni Ramesh gave Rs. 14,67,41,557/-
and took back Rs. 9 Crores from the ‘Respondents’ as such
prima-facie this does not seem to be a clear transaction of
payment of money towards acquisition of shares and
consequently allotment of shares in favour of the ‘Appellants’ is
also not established.’
18. Significantly, the three persons named by the NCLAT in the
table in the very same paragraph as the ‘known persons’ who paid the
monies are none other than appellant Nos. 2 and 3 and Ms. Vahini Surya
15
Chalasani, the joint-account holder of appellant No. 1. Therefore, theconclusion of the NCLAT that the money was not transferred by the
appellants was factually incorrect. Further, the story put forth by respondent
No. 2 as to his friend, L. Ramesh, playing a role in the transaction was
taken to be the biblical truth by the NCLAT though it was very much in
dispute and required to be proved, even as per the interim order passed by
NCLT. As regards the issue of limitation, the NCLAT simply went by the
date of purchase of the shares and the date of the institution of the
Company Petition and concluded that the same was barred by limitation,
without reference to the issue highlighted by the NCLT in its initial interim
order that limitation, being a mixed question of law in fact, required further
examination as to when the clock would start ticking. The further finding of
the NCLAT that the appellants had not furnished any documentary proof of
their claims was equally bereft of foundation as material had been
produced by them, which was duly taken note of in the NCLT’s interim
order, which led it to the opinion that further inquiry was needed on those
aspects. To further compound the patent lack of application of mind on its
part, the NCLAT observed that the appellants failed to produce their original
share certificates pursuant to the NCLT’s order dated 18.02.2021,
overlooking the fact that the original share certificates and other documents
16
were, in fact, filed by the appellants along with their rejoinder dated22.03.2021. Concluding that the appellants had failed to cross the first
hurdle of locus, the NCLAT held that they could not maintain the allegation
of oppression and mismanagement which would be available only to a
person who is a member of the company. The NCLAT accordingly
dismissed the appeal and the I.A. as devoid of merit, leading to the filing of
these appeals.
19. IA Nos. 171771 and 168458 of 2023 filed in one of these
appeals by the appellants seeking permission to file additional documents
are allowed and the said documents are taken on record. IA No. 72990 of
2024 is also allowed at the sole risk and peril of the appellants, permitting
deletion of the name of respondent No. 6 from the array of parties.
20. While ordering notice in these appeals on 01.09.2023, this
Court raised certain questions, which the appellants were required to
answer. The questions read as follows:
‘1. Why, after acquiring the shares, the appellants did not come
on the Board of Directors?
2. Why the appellants did not attend or call upon the Directors
to hold the Annual General Meeting(s)?
3. Why the appellants did not take steps as the annual
accounts were not audited and submitted to them and with the
Registrar of Companies.’17
The appellants were directed to file an affidavit dealing with theaforesaid aspects. Pursuant thereto, Affidavit of Compliance dated
08.12.2023 was filed by the appellants. Therein, apropos the first query as
to why the appellants did not come onto the Board of Directors after
acquiring the shares, they stated that they had purchased the shares for
investment purpose and hence, initially, they did not take interest in the
affairs of the company. They further stated that they had long-standing
business and personal relations with respondents 3 and 4, who were the
Directors of the company, and in such circumstances, a fiduciary
relationship existed between them. According to them, they did not come
onto the Board of Directors due to these reasons and trusted that
respondents 3 and 4 would continue to run the affairs of the company in
accordance with law.
21. As regards the second query posed by this Court as to why
they did not attend Annual General Meetings or call upon the Directors to
hold such meetings, the appellants stated that the name of the company
was struck off by the Registrar of Companies on 21.07.2017 owing to
failure in filing of Annual Returns for the financial years 2014-15, 2015-16
and 2016-17. It was only on coming to know of this that the appellants
claim to have inquired with the Directors and were informed that the issue
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would be settled shortly. The Directors are stated to have informed themorally that there was a complaint filed against the Directors and the Auditor
of the company in Machavaram Police Station at Vijayawada on
30.12.2013, by one of the shareholders, and the Directors promised that all
issues would be settled and the Annual Returns would be updated with the
Registrar of Companies along with the names of the investors. They further
stated that they could not file a company petition when the name of the
company was struck off from the rolls of the Registrar of Companies. They
asserted that the name of the company was restored in August, 2017, but
the company filed Annual Returns for the years 2014-15 to 2016-17 only on
12.06.2018. It was after this event that the appellants claim to have found
that their names were not in the shareholders’ list and questioned the
Directors about such non-inclusion. They further claim that the Directors
assured them that after the police case was closed, the names of the
appellants would be added but the appellants found out that even after the
closure of the case on 30.06.2018, their names were not shown as
shareholders. It was in these circumstances that the company petition was
filed before the NCLT. The appellants asserted that it was due to these
reasons that they could not call for an Annual General Meeting, as they
were not shown as shareholders of the company.
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22. In response to the third query as to why they did not take steps
when the annual accounts were not audited and submitted to them or with
the Registrar of Companies, the appellants stated that, as they were
informed that there was a police case against the Auditor of the company,
they could not take any steps to get the accounts audited and submitted to
them. They further stated that due to the fiduciary relationship between
respondents 2 to 4 and the appellants, they never suspected that the
respondents were not holding Annual General Meetings and were
mis-managing the affairs of the company. Further, the Directors are stated
to have promised that the issue would be settled and that the Annual
Returns would be updated with the Registrar of Companies and that the
investors’ names would be updated. However, despite such assurances by
the Directors, the appellants deemed it prudent to inspect the records of the
company by accessing its master data on the MCA portal in 2017 and were
shocked to find that the affairs of the company were being run contrary to
law, as a result of which the name of the company was struck off by the
Registrar of Companies. The appellants also came to know that their
shareholding was not reflected in the Register of Members and they
accordingly filed a composite petition before the NCLT under Sections 59
and 241 of the Act of 2013.
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23. Satisfactory answers having been furnished by the appellants
as aforestated, it would be appropriate at this stage to take note of the
statutory provisions and precedential law relating thereto. Originally,
Section 155 of the Companies Act, 1956, dealt with rectification
proceedings in connection with entry of names in the Register of Members
of a company. Section 155 was omitted with effect from 31.05.1991.
Section 111 and Section 111-A were inserted in the Companies Act, 1956,
with effect from 31.05.1991 and 20.09.1995 respectively. These provisions
corresponded to erstwhile Section 155. Presently, Section 59 of the Act of
2013 and Rule 70(5) of the National Company Law Tribunal Rules, 2016,
deal with rectification. Rule 70(5) is in pari materia with Section 111(7) of
the Companies Act, 1956.
24. In Ammonia Supplies Corporation (P) Ltd. vs. Modern
Plastic Containers Pvt. Ltd. and others1, the short question for
consideration was framed thus by this Court: ‘Whether in the proceedings
under Section 155 of the Companies Act, 1956, the Court has exclusive
jurisdiction in respect of all the matters raised therein or has only summary
jurisdiction?’ It was observed that the very word ‘rectification’ in Section 155
of the Companies Act, 1956, connotes something that ought to have been
1
(1998) 7 SCC 105
21
done but by error was not done or ought not to have been done but was
done, requiring correction. It was held that the Court has discretion to find
out whether the dispute raised is really for rectification or is of such a
nature that, unless decided first, it would not come within the purview of
rectification. It was further held that, if it is truly a case of rectification, all
matters raised in that connection should be decided under Section 155, but
if it finds adjudication of any matter not falling under it, the Court may direct
a party to get his right adjudicated by a civil court. Noting that there was
nothing in the Companies Act, 1956, expressly barring the jurisdiction of the
civil court, it was observed that where the ‘Court’ as defined under the Act
is exercising its powers under various sections, where it has been vested
with exclusive jurisdiction, the jurisdiction of the civil court is impliedly
barred. It was, therefore, held that to the extent the ‘Court’ has exclusive
jurisdiction under Section 155, the jurisdiction of the civil court is impliedly
barred. But for what is not covered as aforesaid, the civil court would have
jurisdiction. Noting that the jurisdiction of the ‘Court’ under Section 155 is
summary in nature, it was held that it would be appropriate for the ‘Court’ to
see for itself whether any document alleged to be forged is said to be so,
only to exclude the jurisdiction of the ‘Court’ or it is genuinely so. As the
High Court, exercising jurisdiction under Section 155 of the Companies Act,
22
1956, had not examined the case in this light, this Court remanded the
matter to the High Court for decision afresh. The observations in paragraph
26 of the judgment are of relevance in this regard and are extracted below:
“26. The proviso gave discretion to the court to direct an issue of
law to be tried, if raised. By this deletion, submission is that the
Company Court now itself has to decide any question relating to the
rectification of the Register including the law and not to send one to
the civil court. There could be no doubt any question raised within the
peripheral field of rectification, it is the court under Section 155 alone
which would have exclusive jurisdiction. However, the question
raised does not rest here. In case any claim is based on some
seriously disputed civil rights or title, denial of any transaction or any
other basic facts which may be the foundation to claim a right to be a
member and if the court feels such claim does not constitute to be a
rectification but instead seeking adjudication of basic pillar some
such facts falling outside the rectification, its discretion to send a
party to seek his relief before the civil court first for the adjudication of
such facts, it cannot be said such right of the court to have been
taken away merely on account of the deletion of the aforesaid
proviso. Otherwise under the garb of rectification one may lay claim
of many such contentious issues for adjudication not falling under it.
Thus in other words, the court under it has discretion to find whether
the dispute raised is really for rectification or is of such a nature that
unless decided first it would not come within the purview of
rectification. The word “rectification” itself connotes some error which
has crept in requiring correction. Error would only mean everything
as required under the law has been done yet by some mistake the
name is either omitted or wrongly recorded in the Register of the
company. …”
25. In Standard Chartered Bank vs. Andhra Bank Financial
Services Limited2, a 3-Judge Bench of this Court affirmed the view taken
in Ammonia Supplies Corporation (P) Ltd. (supra) that the jurisdiction
2
(2006) 6 SCC 9423
exercised by a Company Court under Section 155 of the Companies Act,1956 (Section 111, thereafter), was somewhat summary in nature and that,
if a seriously disputed question of title arose, the Company Court should
relegate the parties to a suit, which was the more appropriate remedy for
investigation and adjudication of such seriously disputed questions of title.
26. In Jai Mahal Hotels Private Limited vs. Devraj Singh and
others3, this Court again held that issues which truly relate to ‘rectification’
of the Register fall within the summary jurisdiction of the Company Law
Board and only complex questions of title fall outside its jurisdiction. It was
observed that there is a thin line in appreciating the scope of jurisdiction of
the Company Court and the jurisdiction is exclusive, if the matter truly
relates to ‘rectification’, but if the issue is alien to ‘rectification’, such matter
may not be within the exclusive jurisdiction of the Company Court.
27. In Adesh Kaur vs. Eicher Motors Limited and others 4, this
Court found, on facts, that it was an open-and-shut case of fraud, in which
the appellant who had applied for rectification had been the victim, and held
that the appellate tribunal was not correct in relegating the appellant to the
civil court on the ground that a criminal complaint and a SEBI investigation
were pending and in holding that it was not proper for the National
3
(2016) 1 SCC 423
4
(2018) 7 SCC 70924
Company Law Tribunal to exercise power to rectify the Register underSection 59 of the Companies Act, 2013.
28. In Shashi Prakash Khemka (Dead) through legal
representatives and another vs. NEPC MICON (Now NEPC India Limited)
and others5, this Court again had occasion to deal with exercise of power
under Section 111-A of the Companies Act, 1956. The Company Law
Board’s view had been reversed by the Madras High Court in appeal,
whereby the appellants were relegated to the remedy of a civil suit in
relation to the issue raised qua the transfer of shares. This Court took note
of the earlier judgment in Ammonia Supplies Corporation (P) Ltd.
(supra) but noted that Section 430 of the Act of 2013 barred the jurisdiction
of the civil court and opined that the effect thereof is that, in matters in
respect of which power has been conferred on the National Company Law
Tribunal, the jurisdiction of the civil court is completely barred. This Court
observed that it is not in dispute that, were a dispute to arise today, remedy
of a civil suit would be completely barred and the power would vest with the
National Company Law Tribunal under Section 59 of the Companies Act,
2013. Noting that the cause of action in that case had arisen at a stage
prior to enactment of the Act of 2013, this Court was of the view that
relegating the parties to a civil suit would not be the appropriate remedy,
5
(2019) 18 SCC 569
25
considering the manner in which Section 430 of the Act of 2013 was widely
worded.
29. Shashi Prakash Kemka (supra) was followed by the National
Company Law Appellate Tribunal, New Delhi, in Smiti Golyan and others
vs. Nulon India Ltd. and others 6 whereby, the decision of the National
Company Law Tribunal, Principal Bench, in relation to rectification
proceedings was upheld without relegating the parties to the civil court.
Civil Appeal No. 4639 of 2019 filed before this Court against Smiti Golyan
(supra) was dismissed on 03.07.2019 and this Court observed that the
findings recorded by the National Company Law Appellate Tribunal were
absolutely proper and no ground was made out to interfere with the same.
30. Thereafter, in IFB Agro Industries Limited vs. SICGIL India
Limited and others7, this Court considered the appropriate forum for
adjudication and determination of violations and consequential action
thereon under the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997, and the Securities
and Exchange Board of India (Prohibition of Insider Trading) Regulations,
1992. It was observed that the Securities and Exchange Board of India
(SEBI) was conferred with regulatory jurisdiction, which included ex-ante
powers to predict possible violations and take preventive measures. This
6
Company Appeal (AT) No. 222 of 2018, decided on 25.03.2019
7
(2023) 4 SCC 209.
26
Court held that the role of SEBI as a regulator could not be circumvented
by applying for rectification under Section 111-A of the Act of 1956 and that,
such an approach would be impermissible as scrutiny and examination of a
transaction allegedly conducted in violation of the Regulations has to be
processed through the rules and remedies provided in the Regulations
themselves. This Court emphasized that when Constitutional Courts are
called upon to interpret provisions affecting exercise of powers and
jurisdiction by regulatory bodies, it is the duty of the Court to ensure that
transactions falling within the province of the regulators are necessarily
subjected to their scrutiny and regulation. It was pointed out that this would
ensure that the regulatory body charged with the duty to protect the
consumers has real-time control over the sector, thereby realizing the
purpose of its constitution. It was, therefore, held that the purpose of these
regulations could not be short-circuited by making an application to the
Company Court under Section 111-A of the Act of 1956, on the ground that
the provision bestowed jurisdiction parallel to the SEBI. It is in this context
that this Court, in IFB Agro Industries Limited (supra), examined Sections
155 and 111-A of the Act of 1956 and Section 59 of the Act of 2013. The
judgment heavily relied upon and extensively quoted from the earlier
27
judgment in Ammonia Supplies Corporation (P) Ltd. (supra), which we
have already referred to hereinabove and also quoted.
31. The judgment in Ammonia Supplies Corporation (P) Ltd.
(supra), as noted, states that the 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. However, if the Company
Court finds that the dispute relates to the field of ‘rectification’ or its
peripheral aspects, it will have exclusive jurisdiction to address the claim
under Section 155 of the Act of 1965. When the Court is, however, of the
opinion that the contentious issues that are raised before it for adjudication
do not fall within that sphere and, in consequence, its jurisdiction under that
provision, the power of rectification should not be exercised. Thus, if the
application for rectification, in effect, includes projected claims which do not
come within the purview of rectification and the Company Court feels that
the civil court/regulatory body would be the more appropriate forum,
jurisdiction under Section 155 of the Act of 1965 would not be exercised.
32. This would mean that the National Company Law Tribunal
exercising jurisdiction under Section 59 of the Act of 2013 has to examine
28
the factual issues to ascertain the substance of the issue before it after
removing the cloak of the form of the application. The expression
‘rectification’, as already pointed out, connotes 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.
33. Significantly, the earlier decision in Shashi Prakash Khemka
(supra) had concluded that the jurisdiction of the civil court would be barred
by referring to the provisions of Section 430 of the Act of 2013. Neither this
provision nor this decision was noticed by this Court in IFB Agro
Industries Limited (supra). However, it would be wrong to hold that, for
the said reason, there is a conflict between these two decisions. 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
29
particular provision of the Act of 1956/Act of 2013, the jurisdiction of the
civil court would not be completely barred (See Dhulabhai vs. State of
Madhya Pradesh and another8). Notably, the edict in Ammonia Supplies
Corporation (P) Ltd. (supra) was also to this effect and it was followed and
affirmed in the decisions that followed thereafter. In Adesh Kaur (supra),
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. This Court rejected the contention that, as
criminal proceedings had been initiated, there was a serious dispute and it
was not correct for the National Company Law Tribunal to exercise power
under Section 59 of the Act of 2013. The contention that the shares had
been dematted and were in the name of another person and, therefore, the
power of rectification should not have been exercised, was also rejected.
34. 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
8
(1968) 3 SCR 662.
30
calling upon respondent No. 2 to prove the veracity of the contrary story put
forth by him, despite receiving monies from the appellants. 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. (See High Court of Judicature at Bombay
through its Registrar vs. Udaysingh and others9).
35. 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. Notably, in Ammonia Supplies Corporation (P)
Ltd. (supra), this Court held to that effect in the context of Section 155 of
the Companies Act, 1956. Thereafter, in Aadesh Kaur (supra) also, this
Court affirmed that if, on facts, an open-and-shut case of fraud is made out
in favour of the person seeking rectification, the National Company Law
Tribunal would be entitled to exercise such power under Section 59 of the
9
(1997) 5 SCC 129.
31
Act of 2013. Therefore, verification of this aspect was essential but the
NCLT failed to discharge this mandate.
36. Another crucial fact that needs to be noted is that the interim
order passed on 27.06.2019 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. 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. Further, 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 ₹14,66,39,400/- to respondent
No. 2. Neither the NCLT nor the NCLAT chose to labour over the actual
32
issues for consideration by looking at the documentary evidence already
placed on record or by calling for further evidence in that regard.
37. On the above analysis, these appeals deserve to be and are,
accordingly, allowed. The judgment in Company Petition No. 667/59 &
241/HDB/2018 and the judgment in Company Appeal (AT) (CH) No. 44 of
2021 & I.A. No. 548 of 2021 are set aside. Company Petition No. 667/59 &
241/HDB/2018 is restored 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.
Pending I.A.s, if any, shall stand disposed of.
Parties shall bear their own costs.
………………………..,J
(SANJIV KHANNA)
………………………..,J
(SANJAY KUMAR)
September 9, 2024;
New Delhi.
33