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TMI Blog2023 (7) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... me of a person is erroneously entered in the register in place of a rightful owner and such error appears to be apparent a proceeding under Section 59 would be permissible. In ADESH KAUR VERSUS EICHER MOTORS LIMITED AND ORS. [ 2018 (8) TMI 836 - SUPREME COURT] the jurisdiction of the tribunal in a proceeding under Section 59 was not interfered with as the Hon ble Supreme Court observed that it was an open and shut case of fraud in which the appellant has been victim, and respondent no. 2 the perpetrator . As a corollary if it appears that the disputed questions of the facts are complicated and cannot be conveniently decided in a summary procedure the jurisdiction of the Civil Court is not ousted. Although it cannot be disputed that the NCLT may have jurisdiction to decide the title of any person who is a party to the application urging that his name has been wrongly omitted from the register or should have been entered in the register in a proceeding under Section 59 of the present Act or Section 155 read with Section 111 of the Companies Act, 1956, however, the issue in the suit is not one of rectification. NCLT thus, would have jurisdiction to decide a rectification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 4. 10. Sambhunath reposed complete faith in the defendant no. 1 regarding the affairs of the defendant no. 4 except the business actually carried on by the defendant no. 4. The complete faith and trust on the defendant no. 1 by Sambhunath continued till 2009 when Sambhunath for the first time detected diverse financial irregularities committed by the defendant no. 1. Ultimately, defendant no. 1 resigned as auditor of the defendant no. 4 on 30th April, 2010. 11. In the mean time and from time to time, authorized and paid up share capital of the defendant no. 4 was increased. The plaintiff alleged that such increase during the aforesaid period in the share capital of the defendant no. 4 was made by Sambhunath at the instance of the defendant no. 1. 12. The plaintiff became a shareholder of the defendant no. 4 on 30th March, 2002 when Sambhunath had caused the defendant no. 4 to issue 500 shares in favour of the plaintiff. The shareholding of the plaintiff in the defendant no. 4 had increased thereafter from time to time and ultimately, the plaintiff became the holder of the 46,500 fully paid up equity shares of the defendant no. 4. 13. On 12th March, 2015 the plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant no. 4 being a private limited company and a family company of Sambhunath such shares could not have been allotted to and in favour of the defendant nos. 2 and 3. 18. The plaintiff alleged that such shares were caused to be issued by the defendant no. 1 by keeping Sambhnath in dark as under no circumstances he could have allowed the control of the family company to go into the hand of outsiders. In any event, the defendant no. 1 being an auditor of the defendant no. 4 was not entitled to acquire shares of in the defendant no. 4 either by himself or even through the companies under his management and control. 19. Acquisition of shares in the name by the defendant no. 1 and in the name of the defendant nos. 2 and 3 were either directly or by necessary implication barred under the provision of the companies Act, 1956 and subsequently under amended provisions of the company Act, 2013. The appellant being an auditor of the defendant no. 4 could not have acquired shares of the defendant no. 4 directly or indirectly. Since such acquisition of shares are illegal being statutorily barred and void ab initio the shareholding of the said two companies being the defendant nos. 2 and 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the share certificates issued in favour of the defendant nos. 2 and 3 by the defendant no. 4 in respect of the shares mentioned in prayer (a) above; c) Decree for perpetual injunction restraining the defendant nos. 1 to 3 and each one of them by themselves or through their respective servants, agents or assigns from exercising any ownership right in respect of the said shares mentioned in paragraph a) above in any manner whatsoever; d) Decree for perpetual injunction restraining the defendant nos. 1 to 3 and each one of them either by themselves or through their respective servants, agents or assigns form exercising any voting right in respect of the said shares in any manner whatsoever;. 22. On 18th February, 2020 in an application for interim relief Justice Basak had passed the following order: It is not disputed that, the defendant no. 1 acted as the auditor of the defendant no. 4. There were issue and allotment of shares of the defendant no. 4 in favour of the defendant no. 1 and defendant nos. 2 and 3 during the period the defendant no. 1 acted as an auditor of the defendant no. 4. The defendant nos. 2 and 3 admittedly are under the control and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Civil Court only. Section 65 of the Insolvency and Bankruptcy Code, 2016 has no manner of application in the instant case as the challenge is against issuance of shares by the auditor of a company in derogation of his fiduciary with the company and whether the said act of the auditor is in contravention of the provisions of Company Act, 2013 is on act of fraud or not is to be decided by the Civil Court. This court finds that the judgment relied by the plaintiff is distinguishable and the judgment relied by the defendants are squarely applicable in the instant case. In view of the above, this Court finds that NCLT is not competent to enquire into the allegation of fraud specifically when the plaintiff has prayed for declaration of recording the names of defendant no. 2 and 3 as share holders in the books and the register of defendant no. 4 fraudulently and also prayed for perpetual injunction against the defendant nos. 1 to 3. Accordingly, the suit filed by the plaintiff is maintainable. 26. Mr. Kuldip Mallick, learned Counsel representing the appellant submits that the Companies Act, 2013 has brought about a sea change with regard to the jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urya Constructions Pvt. Ltd. Ors., reported in 2018 SCC Online Del 11909: (2019) 212 Comp. Cas 102 NCLT is the proper forum to decide the said issue. 30. The learned Counsel has referred to Embassy Property Developments Pvt. Ltd. v. State of Karnataka Ors. reported in 2020 (13) SCC 308 in order to emphasis that fraudulent dealings and transactions can be enquired and adjudicated by NCLT in exercise of its power under Section 65 of the IBC 2016 and having regard to conferment of such jurisdiction upon the NCLT, the issues involved in the suit can only be decided and tried exclusively by NCLT and not by a Civil Court. 31. Per contra, Mr. Satarup Banerjee, learned Counsel appearing on behalf of the plaintiff has submitted that the issue raised in the plaint cannot be decided by NCLT. The suit is not for rectification of the register. It may so happen that in the event the issuance of share in favour of respondent nos. 2 and 3 are held to be illegal and the shares certificates are delivered and cancelled, the plaintiff may have a cause of action to apply for rectifications and recording his name in the share register in accordance with the Articles but the primary relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness School and others). 27. A reading of Section 58 of the Companies Act, 2013, shows that rectification of register of members has to be decided by the Tribunal and as per Section 430 of the Companies Act, 2013, the Civil Court has no jurisdiction. At the same time, in the judgment relied on by the learned Senior Counsel for the petitioner and first respondent, it is clear that the Tribunal has a power only to decide the issue of rectification of register of members as per Section 58 of the Act and has no power to decide the issue of title. It is relevant to note that as per Section 111A of the Companies Act, 1956, the Company Law Board was empowered to decide the issue of title also. The word 'title' was not included in Section 58 of the Companies Act, 2013. Even while considering the Section 111A, it was held by the Hon'ble Apex Court that a seriously disputed question of title cannot be decided by the Company Court or Company Law Board. This conclusion was arrived by the Hon'ble Apex Court by taking into consideration of the jurisdiction of the Company Law board is summary in nature. The procedure in National Company Law Tribunal constituted under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench judgment in Vikram Jairath (supra) is also distinguishable on facts. It is submitted that the Appeal Court was considering the order of injunction and in deciding the said issue the appellate Court interpreted Section 58, 59, 241 and 242 of the Companies Act, 2013. On analyzing of the said sections the Appellate Court declined to interfere with the order of the learned Single Judge on the ground that there are parallel proceedings one before the High Court and the other before NCLT and the proceeding before NCLT were more comprehensive and the issues raised in the Civil suit was also raised in the pending NCLT proceeding. In the said judgment it has not been decided that where question of title is raised or fraud alleged the jurisdiction of the Civil Court is ousted by reason of Section 430 of the Companies Act. 34. Mr. Banerjee has submitted that the jurisdiction exercised by the NCLT is summary in nature has been recently reiterated in IFB Agro Industries Limited. V. Sicgil India Limited Ors., reported in 2023(4) SCC 209. The judgment in Ammonia Supplies Corpn. Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd., reported at 1998 (7) SCC 105 have been accepted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a private company limited by share refuses whether in pursuance of any power of the Company under its article or otherwise to register the transfer of or the transmission by operational law of the right to any security or interest within a period of 30 days from the date on which the instrument of transfer or the intimation of such transmission was delivered to the company if there is a refusal the transferee may appeal to the tribunal under Section 58(5) of the Companies Act, 2013 where, however, the name of a person is erroneously entered in the register in place of a rightful owner and such error appears to be apparent a proceeding under Section 59 would be permissible. 39. In Adesh Kaur v. Eigher Motors Limited Ors.; 2018(7) SCC 709) the jurisdiction of the tribunal in a proceeding under Section 59 was not interfered with as the Hon ble Supreme Court observed that it was an open and shut case of fraud in which the appellant has been victim, and respondent no. 2 the perpetrator . (emphasis supplied) For the sake of clarity the relevant paragraphs are reproduced below: 2. It appears that sometime in 2012, another Ms. Adesh Kaur, who is a resident of Mumbai imper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from her oral testimony and her original share certificates, there is little else to be adduced in evidence even in a Civil Suit. She has her original certificates in hand. The Respondents are aware of the fraudulent acts perpetuated on her and have even initiated criminal proceedings. There is no reason for the Petitioner to be deprived of her assets for the outcome of the criminal investigation or wait for the criminal to be brought to book. Her documents and her entitlement are not denied to by the Respondents. Under such circumstances, vague denial to escape any liability and to suggest that the Petitioner initiates a Civil Suit is viewed as an attempt not to redress the grievance which has primarily arisen out of the fraud played by the employees of the Respondent Company or their Agents. Apart from guidelines of Respondent No. 3 that unequivocally make the Respondent Company liable for the acts of their Register cum Share Transfer Agents, the law on the point is clear that the Principals are liable for the acts of their agents. 9. We are of the view that the Tribunal was absolutely correct in not relegating the Appellant to any further proceedings inasmuch this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that unless decided first it would not come within the purview of rectification. The word rectification itself connotes some error which has crept in requiring correction. Error would only mean everything as required under the law has been done yet by some mistake the name is either omitted or wrongly recorded in the Register of the company .. 27. In other words, in order to qualify for rectification, every procedure as prescribed under the Companies Act before recording the name in the register of the company has to be stated to have been complied with by the applicant.... The Court has to examine on the facts of each case whether an application is for rectification or something else. So field or peripheral jurisdiction of the court under it would be what comes under rectification, not projected claims under the garb of rectification. So far exercising of power for rectification within its field there could be no doubt the Court as referred Under Section 155 read with Section 2(11) and Section 10, it is the Company Court alone has exclusive jurisdiction...But this does not mean by interpreting such court having exclusive jurisdiction to include within it what is not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This Court, in Standard Chartered Bank v. Andhra Bank Financial Services Ltd. and Ors. (2006) 6 SCC 94 and Jai Mahal Hotels (P) Ltd. v. Devraj Singh and Ors. (2016) 1 SCC 423 , held that even though Section 111(7) of the 1956 Act seemingly enlarges the power of the CLB, the power of rectification continues to remain summary in nature and if any seriously disputed questions arise, the Company Court should relegate the parties to a forum which is more appropriate for investigation and adjudication of such disputed questions. 41. NCLT thus, would have jurisdiction to decide a rectification proceeding where facts are self evident and does not call for any serious enquiry or adjudication of fraud. It would depend on the facts of a case. However, the present proceeding is not for rectification although eventually it may lead to the same in the event the suit is decreed. 42. In view of the aforesaid we are in agreement with the judgment passed by Justice Krishna Rao. We are affirming the judgment under appeal. 43. In the event, the appellant has not filed any written statement and the time had expired in the meantime the appellant shall be permitted to file written statement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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