NCLT Cannot Order Issuance Of New Share Certificates, Can Only Rectify Existing Records: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Chennai, recently clarified that Section 59 of the Companies Act, 2013 which allows company court to correct mistakes in a company's official register of members (shareholders) cannot be used to compel a company to issue new share certificates.

Dismissing an appeal filed by an ex-employee of a Hyderabad based company, the tribunal upheld an order of the National Company Law Tribunal, Hyderabad which had rejected the plea as not maintainable.

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain said the provision has a limited purpose and cannot be stretched beyond it.

Recording its finding, the tribunal observed, “From the arguments advanced by the Ld. Counsels for the parties, it is evident that Section 59 of the Companies Act is exclusively limited to the rectification of the register of members. In the present case, however, the relief sought pertains to a direction for issuance of a valid share certificate, which does not fall within the scope of Section 59 of the Companies Act.”

The dispute traces back to a claim by Mohan Ram Prasad Devineni, a former employee of Biochemical & Synthetic Products Private Limited, who said the company failed to recognise his shareholding.

Devineni approached the NCLT alleging that he was entitled to 12.5 percent equity in the company as sweat equity promised under his employment agreement, and sought correction of the company's shareholder records along with issuance of share certificates in his name.

He argued that the company's refusal to issue share certificates effectively denied him ownership rights and asked the tribunal to direct the company to formally recognise him as a shareholder. He also relied on Rule 70(5) of the NCLT Rules, 2016, and pointed to the withdrawal of earlier arbitration proceedings to contend that his petition under Section 59 was maintainable.

The appellate tribunal rejected these submissions. It held that the provision applies only when a valid shareholding already exists and presupposes possession of a lawful share certificate. It further noted that Devineni himself had admitted that the share certificate he relied upon was defective, incomplete, and unnumbered.

Rectification, the tribunal said, involves correcting an existing entry and cannot be used to create new rights. Clarifying its position, it observed that Section 59 does not empower the tribunal to direct issuance of share certificates in the first instance, while Rule 70(5) is procedural in nature and cannot expand the substantive jurisdiction under Section 59 of the Companies Act. It further recorded that withdrawal of arbitration proceedings could not, by itself, confer jurisdiction on the NCLT.

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