Rectification of Register of Members: Expanding National Company Law Tribunal’s Jurisdiction
There appears to be a conscious endeavour to empower NCLT, the specialized body in respect of matters relating to companies, to provide an unambiguous and clear dispute resolution mechanism say authors Kumar Kislay & Angad Baxi from J. Sagar Associates.
The Companies Act, 2013 (“Act”) has substantially expanded the National Company Law Tribunal’s (“NCLT”) power. Even a cursory analysis of the provisions reveals the expansive scope of the jurisdiction exercised by NCLTs today. The restrictions imposed by the judgement of Ammonia Supplies Corporation (PT) Limited v. Modern Plastic Containers (P) Limited (“Ammonia”) on NCLT’s predecessor, Company Law Board (“CLB”), have been expunged and now NCLT exercises exclusive jurisdiction. This article analyzes the changing jurisprudence and rectification of the register of members.
Legislative and Judicial History
Section 58 and Section 59 of the Act deal with the situation in which (i) a company refuses to register the transfer of shares and (ii) a member’s name has, without “sufficient cause”, been omitted/added in the register. Section 58 and Section 59 originated in Section 111 and Section 111-A of the Companies Act, 1956 (“1956 Act”).
The extent of CLB’s jurisdiction under Section 111 of the 1956 Act had been widely debated and there were conflicting decisions. In a few matters, CLB used to exercise jurisdiction on grounds of fraud, misrepresentation, and statutory violations. At the same time, there have been cases wherein CLB recused itself on grounds that it exercises only summary jurisdiction and cannot enter into a fact-finding exercise.
This debate was eventually settled in the case of Ammonia, where the Supreme Court held:
Jurisdiction of CLB under Section 111 of the 1956 Act is of summary nature and
Cases involving a serious question of facts and law should be relegated to Civil Courts.
However, even after Ammonia, conflicting decisions continued to emanate from CLB.
The regime under Companies Act, 2013
However, the Act has brought substantial change and settled the issue legislatively. In this regard, it is important to note the sea change wrought under (i) Section 59 and (ii) Section 430 of the Act, and (iii) Rule 70 of the National Company Law Tribunal Rules, 2016.
The three crucial effects of the present regime are:
- Section 59(1) of the Act extends remedy for rectification of register to public companies.
- Section 430 of the Act expressly ousts civil courts jurisdiction, and
- NCLT is vested with wide-ranging powers to decide issues of rectification of register, extending to questions related to title of shares.
Recent Judicial Pronouncements
The judiciary is cognizant of the changes brought about by the Act. The leading judgement is of Shashi Prakash Khemka (Dead) Through LRs. v. NEPC Micon, wherein the Supreme Court has noted the changes brought under Section 430 and Section 59 of the Act. The Supreme Court, while discussing Ammonia, observed that in view of Section 430 of the Act, the jurisdiction of the civil court is ousted in sole favour of NCLT under Section 59 of the Act.
The said view has been reiterated by the National Company Law Appellate Tribunal (“NCLAT”) in MAIF Investment PTE Limited v. IND-Barath Power Infra Limited. NCLAT held that, under the present regime, NCLT can deal with rectification and all questions, including incidental and peripheral, with regard to rectification for the purpose of deciding legality of the rectification. NCLAT further held that NCLT exercises the widest possible powers and is equipped to deal even with complex questions of the title of shares.
Further, the Calcutta High Court, in the case of Vikram Jairath and Others v. Middleton Hotels Private Limited and Others, has distinguished Ammonia and held that NCLT can adjudicate on difficult or complex questions in a case of rectification of members. The Calcutta High Court came to this finding on the basis of its observation that CLB’s powers were summary in nature under the 1956 Act. However, under the 2013 Act, NCLT has been given wide powers akin to that of a civil court.
In conclusion, there appears to be a conscious endeavour to empower NCLT, the specialized body in respect of matters relating to companies, to provide an unambiguous and clear dispute resolution mechanism.
Note: Views are personal
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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