A DIRECTION FOR ISSUANCE OF SHARE CERTIFICATE IS OUTSIDE THE COPY OF SECTION 59 OF THE COMPANIES ACT, 2013

Section 59 of the Companies Act, 2013 (‘Act’ for short) deals with the rectification of the register of members. It allows an aggrieved person, a member, or the company to appeal to the National Company Law Tribunal if a name is wrongfully entered, omitted, or delayed in the register. A fundamental prerequisite for invoking Section 59 is that the applicant must already be a valid holder of a share certificate. If a certificate is defective, invalid, or never legally issued (such as disputed sweat equity or employment-related claims), Section 59 cannot be used to validate the underlying entitlement or compel issuance. Complex contractual disputes, employment claims, or entitlements to shares that require adjudication of rights must be pursued through civil suits or arbitration rather than summary proceedings under Section 59.

The issue to be discussed in this article is as to whether a direction may be issued for issuance of share certificate under Section 59 of the Act with reference to a decided case law.

In Mohan Ram Prasad Devineni Versus M/s. Biochemical & Synthetic Products Private Limited, and Registrar Of Companies, Hyderabad -2025 (12) TMI 1481 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI, the Company is a private limited company engaged in the manufacture of biochemical and synthetic products. The Applicant had been associated with the Company in a professional capacity and states that, in recognition of his contribution, he is entitled to equity shares aggregating to 12.5% of the Company’s total equity share capital.  The Company’s register of members does not carry the Applicant’s name. Despite the Applicant’s repeated requests, the Company neither entered his name in the register nor issued a fresh certificate in his favour.

The Applicant first invoked arbitration by filing a petition under Sections 11(5), 11(9) and 11(12)(a) of the Arbitration and Conciliation Act, 1996. The prayer of the applicant is for the issuance of a legally valid share certificate. Subsequently, the Applicant withdrew the arbitration proceedings. He stated that he was voluntarily opting out to pursue other appropriate remedies, apprehending a potential conflict between an arbitral award and the proceedings he intended to initiate.

After that the applicant filed an application before the National Company Law Tribunal (‘NCLT’ for short) seeking the following prayers-

• To direct the Respondent No. 1 herein to issue valid Share Certificates aggregating to 12.5% of the total equity shares of the Respondent No. 1 company to the Applicant.
• To direct the Respondent No. 1 Company to rectify the register of members and enter the name of the Applicant as the member and shareholder of the Respondent No. 1 Company.
• To direct Respondent No. 2 to take action against the Respondent No. 1 Company under section 447 of the Companies Act, in furtherance of the Complaint dated 27.06.2022 lodged by the Applicant.
• To pass such other order or orders as this Hon'ble Tribunal deems fit and proper in the interest of justice, equity and good conscience and in the circumstances of the case.

The NCLT rejected the application as not maintainable. It held that, in the absence of any valid share certificate issued in the Applicant’s favour, the register of members could not be rectified, and that no privity of contract between the Applicant and the Company had been established by any evidence on record. Against this order, the applicant filed an appeal before the National Company Law Appellate Tribunal (‘NCLAT’ for short).

The appellant submitted the following before the NCLAT-

• Section 59 is a remedial provision meant to ensure that a person entitled to be on the register is not kept off it by the company’s inaction. The Company’s refusal to enter the Applicant’s name, despite repeated requests, is precisely the kind of unnecessary delay that the Section is designed to cure.
• The irregularities in the certificate are formal and curable.
• Section 59 must be read with Section 469 of the Act and Rule 70(5) of the NCLT Rules, 2016, which empower the NCLT to grant consequential and ancillary directions so that the remedy is complete.
• The NCLT cannot be rendered powerless where the defect in the document is attributable to the Company itself.
• Section 430 of the Act bars civil courts from entertaining matters that the NCLT is empowered to determine. If the NCLT declines jurisdiction, the Applicant will be left without any forum to enforce his shareholding.
• The withdrawal from arbitration was bona fide and was done precisely to avoid conflicting outcomes. There is no award and no pending arbitral proceeding, and withdrawal cannot amount to waiver of a statutory remedy available under the Act.
• The Privity of contract can be inferred from the Company’s conduct, and no elaborate evidence is needed to establish it.
• The NCLT ought at least to have directed the Registrar of Companies to examine the matter under Section 447 of the Act.

The Respondent company submitted the following before the NCLAT-

• Section 59 is a summary remedy confined to rectification of the register of members. Its first pre-condition is that the applicant must already be the holder of a valid share certificate. A prayer for a direction to issue a share certificate is, in substance, a claim to be recognised as a member, not a prayer for rectification.
• The certificate placed on record is not a validly executed share certificate. It displays apparent anomalies and does not satisfy the conditions prescribed under Rule 8(2) of the Companies (Share Capital and Debentures) Rules, 2014. A defective document cannot found proceedings under Section 59.
• Section 469 is merely an enabling provision conferring Rule-making power to facilitate implementation of the Act.
• Rule 70(5) of the NCLT Rules, 2016, cannot enlarge the jurisdiction conferred by the parent statute, and the inherent restrictions in Section 59 cannot be bypassed through the rules.
• There is no privity of contract between the Applicant and the Company. No allotment, board resolution, or entry in the register has been shown.
• The claim rests on a disputed entitlement raising complex questions of fact that require scrutiny of evidence.
•  The proceeding under Section 59 of the Act is a summary proceeding and it cannot accommodate.
• The appellant chose arbitration, seeking substantially the same relief, and withdrew only after apprehending a conflict between an arbitral award and the proceedings he intended to initiate. Having voluntarily abandoned that forum, he cannot seek a second bite before the NCLT under the guise of a statutory remedy.
• The prayer for action by the Registrar of Companies under Section 447 is without foundation. No material has been placed to show fraud, and such a direction cannot be sought as a rider in a petition for rectification of the register.

The NCLAT analysed the facts of the case and the documents on records. The NCLAT also heard the submissions of the parties to the present appeal. The NCLAT was of the view that if the language of Section 59 of the Companies Act, 2013 and its legislative intent are duly taken into account, the provision is confined simpliciter to the inclusion of the name of a shareholder/member who is already the holder of a validly issued share certificate, based on which an application under Section 59 is preferred for entering such name in the register of members. No relief in the nature of a direction compelling the company to issue a share certificate, alleged to be held by the Applicant, can be sought by filing an application under Section 59. A direction for issuance of a share certificate squarely falls outside the scope and ambit of Section 59 of the Companies Act, 2013.

On the date when the application under Section 59 was filed, the appellant did not possess a valid share certificate in his favour. The share certificate suffered from several defects for example, the issued certificate bore no number, was incomplete, and lacked essential particulars. The NCLAT held that once the share certificate itself was defective, no rectification of the Register of Members could be undertaken on the basis of such a certificate, which admittedly was not valid.

The proceedings before the Arbitrator, initiated pursuant to the arbitration clause, involved consideration of an identical issue namely, a request for a direction against Respondent No. 1 to issue a valid share certificate so as to overcome the deficiencies in the defective share certificate purportedly held by the Appellant. However, he himself withdrew from the arbitration proceedings and instead chose to initiate proceedings under the Companies Act, 2013 before the NCLT. Therefore, withdrawal of arbitration proceedings will not help the appellant for getting a new share certificate and the inclusion of his name in the Register of Members of the Company.

The NCLAT further held that since there is no privity of contract as employer and employee between the Applicant and Respondent No. 1, and as the matter involves complex questions of fact requiring scrutiny of evidence before arriving at a conclusion, a proceeding under Section 59, which is summary in nature, cannot be invoked. Hence, the rejection of the application by the impugned order dated 07.03.2025, holding the proceeding under Section 59 of the Companies Act to be not maintainable, does not suffer from any apparent error warranting interference. The NCLAT dismissed the appeal.