Supreme Court Reaffirms NCLT's Exclusive Jurisdiction in Rectification of Register of Members and Addresses Procedural Irregularities in Share Transfer Dispute
- REEDLAW
- Oct 15, 2024
- 3 min read
he Supreme Court reaffirmed the NCLT's exclusive jurisdiction in the rectification of the Register of Members and addressed procedural irregularities in a share transfer dispute.
The Supreme Court Bench of Justice Sanjiv Khanna and Justice Sanjay Kumar reviewed an appeal and observed that the NCLT has exclusive jurisdiction under Section 59 of the Companies Act, 2013, to adjudicate matters involving rectification of the Register of Members, and claims falling within its purview cannot be relegated to civil courts under Section 430. Furthermore, procedural irregularities or limitations must not defeat substantive justice when there is prima facie evidence of fraud or mismanagement.
The appellant, sought relief from the Supreme Court under Section 423 of the Companies Act, 2013, following the dismissal of their claims by both the NCLT and the NCLAT. They initially approached the NCLT, Hyderabad/Amaravati Bench, for rectification of the Register of Members of M/s. Lexus Technologies Pvt. Ltd. under Sections 59 and 88 of the Companies Act, 2013, alleging oppression, mismanagement, and fraud under Sections 447 and 448 against the respondents—Mantena Narasa Raju, Appa Rao Mukkamala, and Suresh Anne. Their grievance stemmed from the purchase of 10,51,933 shares in 2015, which allegedly made them majority shareholders, but they discovered that their ownership was not reflected in the company’s records after the Registrar of Companies (ROC) struck off the company in 2017 for non-compliance.
The appellants asserted that the respondents filed false financial statements and concealed their shareholding to misappropriate the company’s assets. Despite obtaining an interim order from the NCLT to maintain the status quo on the company’s assets, the respondents denied the transfer of shares, alleging forgery, and questioned the appellants' locus. They argued that the funds transferred were loans arranged by a third party, not consideration for the shares. The NCLT acknowledged that the financial transactions required further scrutiny, and limitation was treated as a mixed question of fact and law. However, the Acting President of the NCLT, in an order dated 21.08.2021, dismissed the petition as time-barred, concluding that there was no credible evidence to prove the share transfer. The decision relied heavily on alleged inconsistencies in the appellants' claims without fully considering the available evidence, such as emails, share certificates, and transfer forms.
Dissatisfied with the outcome, the appellants pursued the matter further in appeal, challenging the procedural irregularities and the failure to address the substantive evidence on record. During the appeal, the Supreme Court posed queries regarding the appellants' conduct, focusing on their failure to join the company’s Board of Directors, non-attendance at AGMs, and inaction concerning unaudited accounts. In their affidavit dated 08.12.2023, the appellants explained that their share acquisition was purely an investment, and they had refrained from joining the Board due to personal trust and fiduciary relations with the respondents. They clarified that they became aware of the company’s strike-off only in July 2017 and, despite oral assurances from the respondents, found upon restoration that their ownership had been excluded from the company’s records. They argued that a police complaint against the company’s auditor hindered timely action regarding financial irregularities.
The Supreme Court found the appellants’ explanations plausible and reiterated that under Section 59 of the Companies Act, 2013, the NCLT has exclusive jurisdiction over rectification matters. Citing precedents such as Ammonia Supplies Corporation and Shashi Prakash Khemka, the Court emphasized that the NCLT’s jurisdiction is limited to rectification unless broader disputes beyond its scope arise. The judgment reaffirmed that under Section 430 of the Companies Act, 2013, issues within the NCLT’s purview cannot be relegated to civil courts. The Supreme Court’s ruling underscores the need for timely intervention in corporate disputes and highlights that procedural barriers cannot override substantive justice where genuine claims of rectification and fraud are involved.
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