Issuance Of Share Certificates Falls Outside The Scope Of Rectification u/s 59: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) Chennai Bench has held that the demand for share certificates cannot be made through rectification proceedings under Section 59of the Companies Act, 2013.

In an appeal filed by Mohan Ram Prasad Devineni, the Appellate Tribunal affirmed that the NCLT was correct in saying that Section 59 is strictly limited to rectification of the register of members and cannot be used to force a company to issue a fresh or valid share certificate particularly when there is no existing valid share certificate.

The appellant approached the NCLTHyderabad Bench under Section 59 seeking directions against Biochemical & Synthetic Products Private Limited to issue share certificates representing 12.5% equity shareholding, rectify the register of members and take action against the company for alleged fraud.

The NCLT dismissed the petition as not maintainable observing that the appellant did not possess a valid share certificate and was effectively seeking issuance of shares not rectification.

Before the NCLAT, the appellant argued that Rule 70 of the NCLT Rules, 2016 empowered the Tribunal to decide questions of title and grant consequential reliefs including issuance of share certificates. It was also argued that withdrawal from arbitration proceedings left the appellant remediless due to the bar under Section 430 of the Companies Act.

The respondent company opposed the appeal submitting that the alleged share certificate was defective, incomplete and not issued in compliance with the Companies (Share Capital and Debentures) Rules, 2014, particularly those governing sweat equity shares.

Rejecting the appeal the NCLAT held that a valid share certificate is an essential condition for invoking Section 59. The Tribunal clarified that rectification presupposes an existing and legally issued shareholding, and Section 59 cannot be used to create or enforce new rights. It further ruled that Rule 70 is procedural and cannot expand the substantive scope of Section 59.

The Tribunal also noted that complex and disputed questions relating to issuance of sweat equity shares and alleged employment entitlements cannot be decided in summary rectification proceedings.

The judgment was delivered by Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member) WHO dismissed the appeal and affirmed the NCLT order.

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