Rectification of share register and mandatory preferential issue procedure upheld despite allotment directions in company proceedings

Cancellation of an allotment that alters the register of members can be examined as a rectification claim under Section 59 of the Companies Act, 2013, because a challenge to such an allotment is in substance a challenge to entries made or continued without sufficient cause or in violation of law. An allotment directed in oppression and mismanagement proceedings under Sections 241 and 242 does not dispense with the mandatory procedure for a further issue of shares under Section 62(1)(c), including authorisation, valuation, and compliance with the connected rules. The Tribunal's earlier directions did not override those statutory safeguards, so the challenge under Section 59 was maintainable and compliance with Section 62(1)(c) remained required.

---

---

Issues: (i) Whether cancellation of allotment of shares and the resulting alteration in the register of members could be examined under Section 59 of the Companies Act, 2013. (ii) Whether an allotment of shares directed in proceedings under Sections 241 and 242 of the Companies Act, 2013 could be implemented without compliance with Section 62(1)(c) and the relevant procedural rules, including valuation requirements.

Issue (i): Whether cancellation of allotment of shares and the resulting alteration in the register of members could be examined under Section 59 of the Companies Act, 2013.

Analysis: The dispute concerned an allotment that had the effect of changing the register of members. A challenge to such an allotment is, in substance, a request for rectification of the register. The statutory remedy under Section 59 is available to an aggrieved person where entries in the register are claimed to have been made or continued without sufficient cause or in violation of law. The Tribunal treated the cancellation question as falling within that jurisdiction.

Conclusion: The challenge to the allotment was maintainable under Section 59, and the issue was answered against the appellants.

Issue (ii): Whether an allotment of shares directed in proceedings under Sections 241 and 242 of the Companies Act, 2013 could be implemented without compliance with Section 62(1)(c) and the relevant procedural rules, including valuation requirements.

Analysis: The directions in the oppression and mismanagement proceedings permitted infusion of funds and allotment of shares on a preferential basis, but they did not expressly dispense with the statutory requirements governing further issue of shares. Section 62(1)(c) requires authorisation and a valuation report for issue to persons otherwise than under clause (a) or clause (b), and the connected rules prescribe the manner of valuation and filing. The inherent powers of the Tribunal cannot override mandatory statutory procedure. The earlier order attained finality only on the question of allotment, not on waiver of the prescribed procedure.

Conclusion: Compliance with Section 62(1)(c) and the relevant rules remained necessary, and the appellants' contention to the contrary was rejected.

Final Conclusion: The appeal failed because the allotment could be tested through rectification proceedings and the statutory safeguards for preferential issue of shares remained binding even where the allotment was made pursuant to directions in company law proceedings.

Ratio Decidendi: A direction for allotment of shares under Sections 241 and 242 does not dispense with the mandatory statutory procedure for issue of shares under Section 62(1)(c) and the connected rules, and an allotment reflected in the register of members may be challenged by rectification proceedings under Section 59.

---