Supreme Court sets aside NCLT and NCLAT judgments for failing to examine evidence in share register rectification case under Section 59

The SC allowed the appeal and set aside judgments of both NCLT and NCLAT in a matter concerning rectification of share register and allegations of oppression and mismanagement. The Court held that NCLT's Acting President failed to properly verify assertions and examine material evidence regarding disputed share transfers, despite receiving interim directions. Both tribunals summarily dismissed the petition without considering documentary evidence or calling for further evidence to determine whether fraud allegations were substantiated. The Court emphasized that Section 59 powers require earnest examination of facts, material and evidence on preponderance of probabilities standard.

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Issues Involved:
1. Whether the petition was filed within the limitation period.
2. Whether the purported transfer of shares was in accordance with the Companies Act and the Articles of Association.
3. Whether the amount purportedly paid should be treated as consideration for the shares.
4. Whether the share certificates purportedly issued to the appellants were genuine.
5. Whether any relief could be granted to the appellants or whether the petition was maintainable.

Issue-wise Detailed Analysis:

1. Limitation Period
The Acting President of the NCLT summarily concluded that the 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 approach was contrary to the observation of the Member (Judicial) of the NCLT in the interim order, which stated that limitation, being a mixed question of law and fact, required a full examination.

2. Transfer of Shares
The Acting President rejected the appellants' case, claiming no documents existed to show the transfer of shares and that the existing shareholders were given an opportunity to buy the shares. This conclusion ignored the material on record, such as emails, transfer forms, and share certificates, which supported the appellants' case. The genuineness of these documents required verification, which was not done.

3. Consideration for Shares
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 the purchase of shares. He noted the discrepancy in the sale consideration amount and concluded that the monies transferred into the account of respondent No.2 were not for the purchase of shares. This conclusion was reached without proper verification of respondent No.2's claims.

4. Authenticity of Share Certificates
The Acting President opined that the appearance of the share certificates was dubious and concluded that they were not genuine and were fabricated. This conclusion was reached without considering the evidence, including the original share certificates produced by the appellants. The NCLT failed to examine the material and evidence properly.

5. Relief and Maintainability
The Acting President concluded that the appellants had failed to prove their case and had not realized their rights as shareholders. He observed that the transaction between the parties was different and did not involve the company, entangling the company in the dispute for no reason. The case was held to be fraudulent and devoid of fact and law, leading to its dismissal with costs of Rs. 5,00,000/-.

Conclusion:
The Supreme Court set aside the judgments of the NCLT and NCLAT, restoring the Company Petition to the file of the National Company Law Tribunal, Amaravati Bench, for fresh consideration on merits and in accordance with law. The NCLT was requested to prioritize and expedite the disposal of the petition. The Supreme Court emphasized the need for proper verification of assertions and evidence, which was not done by the NCLT and NCLAT.

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