Decoding the Conundrum of Rectificatory Jurisdiction of NCLT under Section 59 of Companies Act
Ashita Chawla & Amarpal Singh Dua
Advocates Practicing before the Supreme Court of India
Introduction
This article intends to analyse the scope of Section 59 of the Companies Act, 2013 (“Companies Act”) in view of the position of law as decided by the Supreme Court and National Company Law Appellate Tribunal (“NCLAT”) in the case of Ravi Sanghi v. Gireesh Sanghi & Ors. (2023) ibclaw.in 802 NCLAT. Section 59 of the Companies Act provides for rectification in the register of members. In the usual course these powers are within the exclusive jurisdiction of NCLT alone, however the article intends to analyse whether the NCLT is empowered to act on such requests if there are disputed questions of facts and laws which NCLT is not empowered to adjudicate.
In the above case, the Supreme of India upheld the judgement of NCLAT wherein it was held that National Company Law Tribunal (“NCLT”) can exercise its jurisdiction under Section 59 of the Companies Act even when there are disputed question of facts.
Supreme Court however earlier in its two landmark judgements, had held that the jurisdiction of NCLT under Section 59 of the Companies Act is only of ‘summary nature’ and NCLT cannot decide contentious issues while exercising its summary jurisdiction under Section 59 of the Companies Act.
Facts
An appeal was filed in NCLAT against the NCLT order which dismissed the appeal under Section 59 of the Companies Act for rectification in the register of members. The NCLT while dismissing the appeal relied on two decisions of the Supreme Court in the case of Ammonia Supplies Corporation Pvt. ltd. v. Modern Plastic Containers Pvt. Ltd. & Ors. and IFB Agro Industries Limited v. SICFIL India Limited & Ors.(2023) ibclaw.in 01 SC Wherein, it was categorically held that “NCLT cannot decide contentious issues under the summary procedure which is enshrined under Section 59 of the Companies Act.” The NCLT had further held that in the present case the pleadings as well as submissions are focused on pleas such as illegal transfer of shares, disputed family settlement, non-payment of the shares transferred etc. Therefore, the NCLT cannot exercise its summary jurisdiction, if there are contested facts and disputed questions.
Proceedings before NCLAT
Thereafter, an appeal was filed before the NCLAT. The NCLAT while deciding the appeal differentiated the above two decision of the Hon’ble Supreme Court on the ground that Ammonia Supplies (Supra) was decided on 04.09.1998, under the provisions of Companies Act, 1956 when there was no provision para materia to Section 430 in the Companies Act, which provides that NCLT shall have exclusive jurisdiction with respect to all company matters. The NCLAT also highlighted that in Ammonia Supplies, it was also observed by the Supreme Court that “if the dispute relates to peripheral field of rectification then the company courts will have exclusive jurisdiction but if findings are otherwise then the civil court’s jurisdiction is not barred.”
Similarly, the NCLAT also differentiated IFB Agro (Supra) case by stating that “in IFB Agro there was a dispute between the jurisdiction of SEBI and NCLT and that Section 430 of the Companies Act was not brought before the court”.
Consequently, the NCLAT held that rectificatory jurisdiction under section 59 shall be exercised by NCLT even when there are contested facts and disputed questions. As Section 430 of the Companies Act has created a complete bar on the jurisdiction of civil court to entertain any suit or proceeding which the NCLT or NCLAT is empowered to determine and remanded the matter back to NCLT for fresh adjudication.
Proceedings before Supreme Court
Subsequently, an appeal before the Supreme Court challenging the order NCLAT was filed under Section 423 of the Companies Act. The Supreme Court upheld the judgement of NCLAT which categorically held that “NCLT can decide disputed question of facts as well as title of shares while exercising jurisdiction under Section 59 of the Companies Act”.
Analysis
History of rectificatory jurisdiction under 1956 Act and power of NCLT under Section 59 of Companies Act, 2013
The provision for rectification was present in Section 155 of Companies Act, 1956 (“1956 Act”). Section 155(3)(a) expressly provided that company courts may decide questions relating to title of the shares. The above section was omitted by Companies Amendment Act, 1988 and Section 111A was inserted in the 1956 Act. Section 111A also contained similar provision which expressly provided the Company Law Board can adjudicate upon title of shares. However, the Section 59 of the Companies Act omitted the express provision and confined it to only “rectification”. Therefore, it can be concluded from the above, that the legislature has consciously omitted the express provision which empowered company courts to decide the title of shares.
Further, the Hon’ble High Court of Madras in the case of N. Ramji v. Ashwath Narayan Ramji & Ors., held that “there is no express provision under Section 59 which empowers the NCLT to decide question relating to title of the shares unlike Section 111A of Companies Act”. It was further observed in the above case that the procedure for rectification provided under Section 59 of the Companies Act is summary in nature. Therefore, from the above, it is clear that NCLT cannot decide dispute relating to title of shares while exercising it’s jurisdiction under Section 59 of the Companies Act, 2013.
NCLT cannot decide disputed question of facts in a summary proceeding
Apart from the above, it may be noted that as per the settled proposition, disputed questions of facts which are complicated cannot be decided in a summary procedure. In the case of Phool Chand Gupta& Ors. v. Mukesh Jaiswal, an appeal was filed before the Calcutta High Court, against the order of trial court rejecting the plaint on the ground that disputes raised in the plaint are under exclusive jurisdiction of NCLT. In the above case the issue was that the defendants had perpetuated a fraud on the plantiff’s father along with the auditors by transferring his shares to some outside parties. The Calcutta High Court restored the plaint and held that “NCLT would have jurisdiction to decide rectification proceedings where facts are self-evident and does not call for any serious enquiry or adjudication of fraud. However, the present proceeding is not for rectification although may lead to the same in the event suit is decreed. Therefore the jurisdiction of civil court is not ousted.”
Similarly, in the case of Ms. Shazia Rehman v. Mr. Anwar Elahi & Ors., the Hon’ble Delhi High Court held that in terms of Section 59 the NCLT is not empowered to decide to individual rights or seriously disputed question of title but only empowered to direct rectification. It was further held that in this case that as per Section 430 of the Companies Act Civil Court’s jurisdiction is diminished only to an extent the NCLT has been empowered. It is a settled proposition of law that the exclusion of jurisdiction should not be readily inferred such exclusion must be explicitly expressed or clearly implied.
Conclusion
In view of the above discussion it can be concluded that jurisdiction of NCLT is only limited to direct rectification and it cannot decide seriously disputed question of facts/title under Section 59 of the Companies Act. In our humble view, till then the law laid down by the Supreme Court in the case of IFB Agro (supra) is the correct law as only a larger bench of the Supreme Court can reconsider the scope of jurisdiction of NCLT under Section 59 of the Companies Act.
