RECTIFICATION OF REGISTER OF MEMBERS

[Mr. M. GOVINDARAJAN]

Register of Members

Section 88 of the Act provides that every company shall keep and maintain register of members indicating separately for each class of equity and preference shares held by each member residing in or outside India.  The company has to maintain a ‘foreign register’ if the members are outside India.  The company limited by shares shall maintain the register of members in MGT – 1.  The companies not having share capital is to maintain register of members containing all the details of the members.

Rectification of Register of Members

Section 59 of the Act provides the procedure for rectification of members.  A person may approach a company for rectification of members in the following cases-

• If his name is entered without sufficient cause in the register of members of the company;
• If his name, after having been entered in the register of members,is without sufficient cause omitted from the register of members;
• A default is made in entering his name in the register of members; or
• There is unnecessary delay in entering his name in the register of members.

Remedy

The following may get remedy against the grievance-

• The person who is aggrieved by the action of becoming a member or ceased to be a member; or
• Any member of the company; or
• The company

may file appeal before the National Company Law Tribunal (‘NCLT’ for short).  The foreign members or debenture holders residing outside India can get remedy by filing an appeal before a competent court outside India as specified by the Central Government.

Section 59(4) provides that where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992  or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned.

Procedure for filing appeal before NCLT

The Tribunal after hearing the parties to appeal either dismisses the appeal or direct the company to register the transfer or transmission of shares within ten days of the receipt of the order or direct the rectification of the records of the register or depository.  In case of rectification of register of members by the company the NCLT may direct the company to pay damages , if any, sustained by the party aggrieved.

Voting rights

Section 59(3) provides that the provisions of section 59 shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.

Case laws

Contentious issues

 In ‘Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd’ -  1998 (9) TMI 427 - SUPREME COURT OF INDIA  the  Supreme Court of India clearly held that under the grab of rectification of registrar of entries in the register of members question of fact involving contentious issues cannot be raised.

In ‘MAIF Investments India Pvt. Limited v. M/s Ind-Barath Power infra Limited and another’ - 2018 (10) TMI 338 - NCLT, Hyderabad, the Tribunal held that the conversion of CCDs into equity shares is not in derogation of Articles of Association or the terms of Investment Agreement. In that view of the matter only it is concluded that there is a sufficient cause for mentioning the names of the Petitioners as shareholders of Respondent No. 2 Company on account of conversion.   The Petitioner kept quite till 20.03.2018 in respect of election for conversion of CCDs into equity shares and several issues that crop up in this petition and the fact that the Petitioner filed the Petition under section .7 of the Insolvency and Bankruptcy Code against Respondent No.4 herein would go to show that this Petition is not a mere petition seeking rectification of entries in the register of members but it has got other collateral purposes namely, triggering Corporate Insolvency Resolution Process in respect of Respondent No.4. Therefore, this Tribunal is of the considered view that such contentious issues cannot be decided while exercising jurisdiction u/s.59 of the Companies Act.  The Tribunal dismissed the petition.

Forfeiture of shares

In ‘C.J. Mathew v. Grenndot  Hotels and Resorts (India) (PVT.) LTD. & 3 others’- 2018 (9) TMI 1608 - NCLT, Chennai, the Tribunal held that in the light of the provisions of the Articles of Association of the company and the decision taken by the Board of Directors to forfeit the shares of the Petitioner, it can safely be concluded that the Petitioner is not a member of the 1st Respondent Company as his shares stand forfeited for non-payment of the subscription money.   The Petitioner has miserably failed to support his contention for rectification of the Register of Members for the purpose of entering his name in the Register of members of 1st Respondent Company. Though petitioner claims that he has been chairing all the Board Meetings and was in charge of the finance and fund raising matters, but he did not open any account of the 1st Respondent Company with the Bank and even not maintained any record, particularly with the regard to the payment, if any, of subscription money for 25,000 of shares subscribed. Even, he did not file PAS-3 to intimate the RoC of the allotment of shares being made by the Company. The defence of the Petitioner that the Respondents have fabricated all the record relating to the 1st Respondent Company is hollow and therefore, stands rejected. Thus, the issue raised under stands decided against the Petitioner, as he is not legally entitled to seek relief.

Limitation

Section 59 (1) of the 2013 Act is silent with respect to the Limitation Period to be applied.

Penalty

Section 59(5) provides that if any default is made in complying with the order of the Tribunal under this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.