2019 (5) TMI 605 - AT - Companies Law

Rectification of Register of Members - allotment of shares made to 146 persons - Section 59 of Companies Act, 2013 - HELD THAT - The appellant has not placed copy of the power of attorney and also the copy of the deed of assignment before the Appellate Tribunal to enable us to come to the definite conclusion. We further observe that the alleged allotees has not placed any shares certificates before the Tribunal. We also observed that the appellant have also not agitated that the shares certificates have not been received by them. We further observe that the shares are freely tradeable and the same can be transferred. The appellant is agitating that the shares have been transferred but has not produced any proof to substantiate his version. In the absence of any material on record we cannot reach at a conclusion that the shares cannot be transferred or has not been transferred without adequate reason. Such substantiation has to be done by the appellant and we feel that he has apparently failed to do so both before the NCLT. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Validity of the appellant's claim for rectification of the Register of Members.
2. Allegations of fraudulent removal of shares from the Register of Members.
3. Timeliness of the appellant's petition.
4. Appellant's locus standi and legal entitlement to seek rectification.

Issue-wise Detailed Analysis:

1. Validity of the appellant's claim for rectification of the Register of Members:
The appellant, a Private Limited Company, claimed that 146 individuals, who had applied for more than 1000 shares in the IPO of the 1st respondent in 1996, were allotted a combination of fully paid and partly paid shares. The appellant, as the assignee of the loans provided to these individuals, sought rectification of the Register of Members under Section 59 of the Companies Act, 2013, asserting that the names of these 146 individuals were fraudulently removed from the Register and replaced with the 2nd respondent's name. The appellant argued that Section 59 allows any member or aggrieved party to seek rectification.

2. Allegations of fraudulent removal of shares from the Register of Members:
The appellant alleged that the Register of Members was fraudulently modified to show the 87600 fully paid shares allotted to the 146 individuals as being held by the 2nd respondent. The appellant claimed that this fraudulent alteration was carried out by the 2nd respondent, a key managerial person of the 1st respondent, without the knowledge of the appellant or its predecessors. The appellant sought an injunction to prevent any further changes or transfers related to these shares.

3. Timeliness of the appellant's petition:
The 1st respondent contended that the petition was filed after an inordinate delay of 21 years since the shares were allotted in 1996. The appellant argued that the knowledge of the fraudulent alteration came to light only in 2016, and the petition was filed within the limitation period thereafter. The NCLT dismissed the petition on the grounds of limitation, observing that the appellant and the original shareholders did not act diligently to ascertain the status of their shares for over two decades.

4. Appellant's locus standi and legal entitlement to seek rectification:
The respondent challenged the appellant's locus standi, arguing that the appellant had not provided the necessary Power of Attorney or the deed of assignment to substantiate its claim. The respondent also argued that the appellant, having purchased only one share in the 1st respondent just before filing the petition, could not challenge events that occurred before becoming a member. The appellant maintained that it was the legal owner of the loans and entitled to seek rectification on behalf of the 146 individuals.

Judgment Analysis:
The Appellate Tribunal upheld the NCLT's decision, dismissing the appeal on the following grounds:

- Limitation: The Tribunal agreed with the NCLT that the petition was time-barred, as the appellant failed to act within a reasonable period after the alleged fraudulent alteration of the Register of Members.
- Lack of Evidence: The appellant did not provide crucial documents, such as the Power of Attorney and the deed of assignment, to substantiate its claim. The Tribunal noted that the appellant also failed to produce any share certificates or other proof to support the allegations of fraudulent removal and non-receipt of shares.
- Locus Standi: The Tribunal found that the appellant did not have the necessary legal standing to seek rectification, as it did not adequately demonstrate its entitlement to act on behalf of the 146 individuals.

Conclusion:
The appeal was dismissed due to lack of merit, with no order as to costs. The Tribunal emphasized the importance of timely action and the necessity of providing sufficient evidence to support claims of fraud and entitlement to rectification.