NCLT Empowered To Decide Issues Relating To Allotment Of Share Capital, Alteration And Rectification Of The Register Of Members: Delhi HC [Read Judgment]

NCLT Empowered To Decide Issues Relating To Allotment Of Share Capital, Alteration And Rectification Of The Register Of Members: Delhi HC [Read Judgment]

‘The non-compliance of any conditions contained in Section 62 of the 2013 Act also constitutes mismanagement of the company, inasmuch as under Section 241 of the 2013 Act, the conduct of affairs of the company “in a manner prejudicial” to any member or “in a manner prejudicial to the interest of the company”, would be governed by the same. The jurisdiction to go into these allegations, vests with the Tribunal under Section 242 of the 2013 Act.’

The Delhi High Court has held that National Company Law Tribunal (NCLT) is empowered to decide the issues relating to allotment of share capital, alteration and rectification of the register of members and a civil suit before the High court would not be maintainable.

Justice Prathiba M. Singh was considering a suit for declaration filed SAS Hospitality Pvt. Ltd seeking a declaration that the allotment of shares to some defendants is null and void. The defendants had contended that suit is not maintainable before the High court in view of the bar contained in Section 430 and Section 434(1)(c) of the Companies Act, 2013.

The court, referring to provisions of Company Act, 2013, observed that the NCLT is not merely exercising the jurisdiction of a company court under the new Act, but is also vested with inherent powers and powers to punish for contempt. It said that the NCLT having being vested with all the trappings of a civil court, with the amendments which have now been carried out, the bar under Section 430, however, is definitely triggered.

The court also rejected the argument of the plaintiff company who had relied on an apex court judgment to contend that, if the matter required rectification of the register of the Company, it is to be adjudicated before the civil court. It said: “The observations of the Supreme Court in the context of the earlier Act, above make it clear that if the jurisdiction of the Company Court was exclusive, the jurisdiction of the Civil Court was barred in respect of power to rectify the register of members. However, the Court therein was dealing with Section 446(1) of the Companies Act, 1956, in its earlier avatar. The provisions have undergone a sea change since then. In fact, in Section 446(1) of the Companies Act, 1956 itself the leave of the `Tribunal’ was to be taken after the Act was amended in 2013, i.e., the leave of the CLB had to be taken.”

The judge said: “The allegations in the present case relate to non-compliance of the stipulations in Section 62 of the 2013 Act. The non-compliance of any conditions contained in Section 62 of the 2013 Act also constitutes mismanagement of the company, inasmuch as under Section 241 of the 2013 Act, the conduct of affairs of the company “in a manner prejudicial” to any member or “in a manner prejudicial to the interest of the company”, would be governed by the same. The jurisdiction to go into these allegations, vests with the Tribunal under Section 242 of the 2013 Act. Under Section 242(2), the NCLT has the power to pass “such order as it thinks fit”, including providing for “regulation of conduct of affairs of the company in future”. These powers are extremely broad and are more than what a Civil Court can do. Even if in the present case, the Court grants the reliefs sought for by the Plaintiff, after a full trial, the effective orders in respect of regulating the company, and administering the affairs of the company, cannot be passed in these proceedings. Such orders can only be passed by the NCLT, which has the exclusive jurisdiction to deal with the affairs of the company.”

Rejecting the suit, the court observed that, under Section 242(2) of the 2013 Act, restrictions can be imposed on the transfer or allotment of shares and passing of such orders are within the domain of the NCLT.

Read the Judgment Here