NCLAT Refuses Condonation of Delay in Share Transfer Dispute, Holds S. 14 Inapplicable after Dismissal of Civil Suit [Read Order]

The National Company Law Appellate Tribunal (NCLAT) Bench at Chennai, has dismissed an appeal challenging the rejection of an application filed under Section 59 of the Companies Act, 2013, holding that a shareholder cannot seek condonation of delay by invoking Section 14 of the Limitation Act, 1963 after having suffered an adverse finding on limitation by a competent civil court.

The Tribunal observed that once proceedings initiated by the appellant were dismissed as time-barred and the decision was allowed to attain finality, the same issue could not be brought up before the NCLT at a belated stage.

The appeal arose from an order passed by the National Company Law Tribunal, Hyderabad Bench, which had rejected an application seeking condonation of a delay of 308 days in filing proceedings under Section 59 of the Companies Act relating to rectification of the register of members.

The appellant, Hasmukh Kanubhai Shah, claimed to be the holder of 500 shares in a listed pharmaceutical company and alleged that the shares had been wrongfully transferred to a third party without issuance or delivery of share certificates.

According to the appellant, although the shares were allotted under a specific folio number, no physical share certificates were ever handed over. The appellant contended that he was made aware of the alleged wrongful transfer only through an email dated 10 August, 2015, and subsequently issued a legal notice in April 2016. The company replied in May 2016 stating that the shares had been transferred as far back as 1998.

Instead of immediately approaching the NCLT, the appellant instituted a commercial civil suit in June 2019 before the Commercial Court at Vadodara seeking recovery of ₹3 crore towards the alleged value of the shares along with interest. That suit was dismissed on 5 October, 2021, under Section 3 of the Limitation Act read with Order VII Rule 11(d) of the Code of Civil Procedure, 1908 on the ground that it was barred by limitation. The order rejecting the plaint was treated as a decree and was not challenged further by the appellant.

Subsequently, the appellant approached the NCLT by filing proceedings under Section 59 of the Companies Act, 2013, along with an application seeking condonation of delay. The NCLT rejected the application, holding that the proceedings were time-barred. This order was challenged before the NCLAT.

Before the Appellate Tribunal, the appellant argued that the time spent in prosecuting the commercial civil suit should be excluded under Section 14 of the Limitation Act, as the suit was filed under a bona fide belief and on legal advice. It was contended that Section 433 of the Companies Act permits application of the Limitation Act to proceedings before the NCLT, and therefore the delay deserved to be condoned.

Rejecting these submissions, the NCLAT, comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member), held that Section 14 of the Limitation Act could not be invoked in the present case since the civil suit had not failed for want of jurisdiction or other similar cause, but had been dismissed on merits on the ground of limitation. The Tribunal observed that the appellant had voluntarily invoked the jurisdiction of the Commercial Court, contested the proceedings, and suffered an adverse judgment which had attained finality.

Emphasising the doctrine of constructive res judicata, the NCLAT held that the dismissal of the civil suit operated as a binding determination against the appellant, preventing him from re-agitating the same controversy through proceedings under the Companies Act.

Accordingly, the NCLAT dismissed the appeal and upheld the rejection of the application seeking condonation of delay.

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