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TaxTMI 
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2025 (12) TMI 1481
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....uments advanced by the learned Counsel for the Appellant who has vehemently attempted to bring the proceedings within the ambit of Section 59 of the Companies Act, 2013, the text of Section 59 itself becomes necessary and inevitable for a clearer elucidation of the controversy. Section 59 of the Companies Act, 2013 reads as follows:- "59. Rectification of Register of Members. (1) If the name of any person is, without sufficient cause, entered in the Register of Members of a company, or after having been entered in the register, is, without sufficient cause, omitted there from, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register. (2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismis....
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....shares of the Respondent No. 1 company to the Applicant. b) 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. c) 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 herein. d) 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." 5. If we examine the nature of the relief that has been articulated and prayed for by the Appellant under Section 59, it becomes evident that the Appellant, by invoking Section 59 of the Companies Act, 2013, in fact sought a direction to Respondent No.1, the company in which the Appellant claims to be a shareholder, to issue a valid share certificate aggregating to 12.5% of the total equity shares of Respondent No.1. The relief sought in the application filed under Section 59 of the Companies Act, 2013, therefore, pertains to a direction for the ....
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....ngs and the orders passed therein. As recorded by the learned Tribunal in paragraph 12 of the impugned order, Arbitration Petition No. 43/2023 had already been instituted under Sections 11(5), 11(9), and 11(12)(a) of the Arbitration and Conciliation Act, 1996 before the Hon'ble Apex Court. In the said arbitration proceedings, the cause of action and the relief sought were similar in nature, particularly with respect to the issuance of a legally valid share certificate. It is noted that the Appellant filed a memorandum dated 16.12.2024 expressing his intent to withdraw from the ongoing arbitration proceedings, which concerned the issue of issuance of a legally valid share certificate. The Appellant voluntarily opted out of participating in the arbitration proceedings so as to pursue other appropriate remedies available to him, under the perception that such course would avoid any potential conflict between an arbitral award and the proceedings he intended to initiate, as stated in the memorandum dated 16.12.2024. 9. The learned Tribunal, while considering the rival contentions, recorded a finding that in the absence of any valid share certificate having been issued in favour of t....
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....ion 469(2) must be read with sub-section (3), which prescribes the formulation of rules. It is in exercise of these powers that the Government of India, through Gazette Notification G.S.R. 716(E) dated 21.07.2016, published the National Company Law Tribunal Rules, 2016. Among the rules framed therein, the provision relevant for present purposes, particularly as relied upon by the learned Counsel for the Appellant is Rule 70. Rule 70 is extracted hereunder:- "70. Appeal under sections 58 and 59.- (1) The appeals against the refusal for registration of transfer or transmission of securities under section 58 or for rectification of register of members under section 59 shall be made to the Tribunal by way of a petition in Form No. NCLT. 1 and shall be accompanied by such documents as are mentioned in Annexure-B: Provided that a copy of the appeal shall be served on the concerned company at its registered office immediately after filing of the petition with the Tribunal. (2) The petitioner shall at least fourteen days before the date of hearing advertise the petition in accordance with rule 35. (3) Where any objection of any person whose interest is l....
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....me should be entered in or omitted from the register of members. The learned Counsel further argues that the Tribunal may decide any question that is necessary or expedient for adjudicating an application for rectification. 16. However, if the scope of Rule 70(5) of the NCLT Rules, 2016 is examined in its proper context, as already observed by this Appellate Tribunal, it constitutes subordinate legislation aimed solely at facilitating effective implementation of the provisions contained in Section 59 of the Companies Act. The scope provided under sub-rule (5) is limited to deciding questions of title of any person who is a party to the petition. Rule 70(5) of the NCLT Rules, 2016 therefore cannot come to the aid of the Appellant, in view of the inherent restrictions imposed by Section 59 of the Companies Act itself, which governs the principal substantive provisions relating to the rectification of the register of members. 17. Section 59 already extracted above prescribes a restrictive operation over certain areas of applicability as contained particularly under sub-section (1), which may be understood as follows, it provides for rectification in following cases: i. ....
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.... right to sustain the proceedings under Section 59 of the Companies Act. 19. Admittedly, in the present case, 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, for reasons best known to the Appellant, he himself withdrew from the arbitration proceedings and instead chose to initiate proceedings under the Companies Act, 2013 before the Ld. NCLT. 20. We are of the view that, in the absence of a valid share certificate having been issued in favour of the Appellant and particularly when the Appellant himself contends otherwise the question of validity of the share certificate cannot be scrutinised by the Ld. Tribunal under Rule 70(5) of the NCLT Rules, 2016. Consequently, the withdrawal from the arbitration proceedings has an adverse impact on the maintainability of proceedings under Section 59 of the Companies Act. Furthermore, since the Ld. Tribunal could not exercise its jurisdiction under Rule....
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....lanation.-For the purposes of this rule- (i) the expressions "Employee" means- (a) a permanent employee of the company who has been working in India or outside India, for at least last one year; or (b) a director of the company, whether a whole time director or not; or (c) an employee or a director as defined in sub-clause (a) or (b) above of a subsidiary, in (d) India or outside India, or of a holding company of the company; (ii) the expression 'Value additions' means actual or anticipated economic benefits derived or to be derived by the company from an expert or a professional for providing knowhow or making available rights in the nature of intellectual property rights, by such person to whom sweat equity is being issued for which the consideration is not paid or included in the normal remuneration payable under the contract of employment, in the case of an employee. (2) The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 shall contain the following particulars, namely:- (a) the date of the Board meeting at which the proposal for issue of sweat equity....
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....ation of the register of members. 23. The possibility of rectifying share certificates or any shortcomings that may arise in the issuance of a valid share certificate was earlier made rectifiable in light of the provisions contained in Section 113 of the Companies Act, 1956, which dealt with the limitation of time for issuance of a valid share certificate, particularly the conditions set out under Section 113(3) of the Companies Act, 1956. The said provision is extracted hereunder: - "113. Limitation of time for issue of certificates.- ^1 [Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, deliver, in accordance with the procedure laid down in Section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred: Provided that the^2 [Central Government] may, on an application being made to it in this behalf by the company, e....
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....d grounds and specific circumstances under which Section 59 can be invoked. Even otherwise, by necessary implication, the legislature, under the 2013 Act, has taken away the statutory provision for rectification or correction of defective share certificates. Thus, no such provision exists under the Companies Act, 2013. 25. In fact, we are of the view that the Ld. Tribunal had correctly formed the opinion that the nature of the controversy, particularly in the context of the relief sought in the application preferred under Section 59 of the Companies Act, did not fall within the domain of Section 59, as the Appellant was essentially seeking a direction for issuance of a valid share certificate. The Ld. Tribunal observed that, while exercising its rectificatory jurisdiction, if any seriously disputed questions of fact arise, the Tribunal should relegate the parties to the civil court, which would be the more appropriate forum to investigate and adjudicate such disputes. In such a situation, the bar contained under Section 430 of the Companies Act would not come into play, considering that the nature of the relief sought falls outside the sphere of matters covered under the Compani....
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....rbitrator for the purposes of adjudicating the dispute arising out of the employment agreement. But the Applicant himself had opted out to withdraw the same, by filing a memo to the said effect on 16.12.2024 in order to enable the Applicant to file a proceeding under Section 59 of the Companies Act, 2013. (ii) The so-called alleged employment agreement was never executed, as the same is evident from the absence of there being any evidence being placed on record by the Appellant of having to show that he had, rendered any services in the Respondent company by producing the joining certificate or the pay slips, which could have entitled the Appellant to draw the benefit of the employment agreement, and the consequential issuance of sweat share certificate. (iii) The power of rectification of register of members, as conferred under Section 59 of the Companies Act, 2013. In fact, those are summary proceedings, which enable the rectification of the register of members. There cannot be an elaborative procedure which could even include the ambit to decide the entitlement of holding of the valid shares or to decide the issue of passing any directions as such for the issua....