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2019 (7) TMI 511 - AT - Companies LawRectification in the Register of Members of Respondent No.2 - scope of Section 59 of the Companies Act 2013 - conversion of 906599 CCDs into equity shares - sufficient cause stipulated under Section 59 of the Act - HELD THAT - With change of law now under Section 59 of the Act NCLT can deal with rectification and all questions including incidental and peripheral questions raised with regard to rectification for the purpose of deciding legality of the rectification. NCLT which exercises widest possible powers in a matter under Section 241 242 of the Act; which even otherwise is expected to always keep interest of the Company in forefront cannot be treated as unequipped only because the Petition is under Section 59 of the Act. In the present matter firstly we are of the view that there were really no complex questions involved and even if it was to be said that there were any complex questions the same had to be decided by the NCLT and in Appeal this Tribunal is bound to consider whether or not entry made in the Register of Members could be upheld. There is no substance in the arguments of the contesting Respondents that Section 59 could not be resorted to if the effect would be reduction in capital under Section 66 of the Act. Contesting Respondents who have held back the copy of Resolution of the Board of Directors dated 26th March 2018 cannot be heard on this count without they first showing justification as to how they entered disputed shares against the name of Appellant in the Register of Members. Again even if a Resolution was taken by Promoter Directors on their own in the face of facts of the matter and Articles of Association the same would be and has to be termed as illegal. We direct cancellation of entry of the name of Appellant in the Register of Members of Respondent No.2 showing 906599 equity shares purported to have been credited on the basis of conversion of 906599 CCDs standing in the name of the Appellant - Appeal allowed.
Issues Involved:
1. Rectification of the Register of Members under Section 59 of the Companies Act, 2013. 2. Validity of the conversion of Compulsory Convertible Debentures (CCDs) into equity shares. 3. Compliance with the Articles of Association and Investment Agreement. 4. Jurisdiction of NCLT in matters involving arbitration clauses and complex issues. 5. Quorum requirements for Board Meetings and validity of Board Resolutions. Detailed Analysis: 1. Rectification of the Register of Members under Section 59 of the Companies Act, 2013: The Appellant filed a Company Petition seeking rectification in the Register of Members of Respondent No.2, alleging wrongful conversion of CCDs into equity shares without sufficient cause. The Tribunal emphasized that the primary question was whether the entry of the Appellant's name in the Register of Members was made "without sufficient cause" as stipulated under Section 59 of the Act. 2. Validity of the conversion of Compulsory Convertible Debentures (CCDs) into equity shares: The Appellant argued that the conversion of CCDs into equity shares was ultra vires the Articles of Association and the Investment Agreement. The Tribunal noted that the Appellant had initially sought conversion but later withdrew consent due to prolonged litigation initiated by Respondents. The conversion was argued to be done without the Appellant's affirmative consent, making it illegal. 3. Compliance with the Articles of Association and Investment Agreement: The Articles of Association and the Investment Agreement were crucial in determining the legality of the conversion. The Tribunal highlighted specific Articles, such as Article 59.1, which mandated the presence of Company Investor Directors for quorum and decision-making. The Appellant contended that the Board Meeting held on 26th March 2018 lacked quorum as the Investor Directors had resigned, rendering any resolutions passed as invalid. 4. Jurisdiction of NCLT in matters involving arbitration clauses and complex issues: The Respondents argued that the issues raised required detailed trial and interpretation of agreements, suggesting arbitration as the appropriate forum. However, the Tribunal referred to Section 430 of the Companies Act, 2013, which bars civil court jurisdiction in matters that the Tribunal is empowered to determine. The Tribunal concluded that NCLT could address all questions, including incidental and peripheral ones, related to rectification under Section 59. 5. Quorum requirements for Board Meetings and validity of Board Resolutions: The Tribunal found that the Board Meeting held on 26th March 2018 was not in compliance with the quorum requirements stipulated in the Articles of Association. The absence of Company Investor Directors invalidated any resolutions passed during the meeting. The Tribunal emphasized that the Articles of Association are binding and must be adhered to by the Company and its Directors. Conclusion: The Tribunal set aside the Impugned Judgment, directing the cancellation of the entry of the Appellant's name in the Register of Members for 906599 equity shares purportedly converted from CCDs. The Tribunal concluded that the conversion was done without sufficient cause, in violation of the Articles of Association and the Investment Agreement. The appeal was allowed, and no orders were made as to costs.
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