A) ABSTRACT / HEADNOTE

This case pertains to allegations of fraudulent share transfer and mismanagement within M/s. Lexus Technologies Pvt. Ltd. The appellants sought rectification of the company’s Register of Members under Sections 59 and 88 of the Companies Act, 2013, alleging that their shareholding was unlawfully omitted from the records. They also sought action under Sections 447 and 448 of the Act for fraud. The National Company Law Tribunal (NCLT) dismissed the petition, and the National Company Law Appellate Tribunal (NCLAT) upheld this decision. The Supreme Court, upon review, found procedural lapses in evaluating evidence and reinstated the petition for reconsideration by the NCLT.

Keywords: Rectification of Register of Members, Oppression and Mismanagement, Fraudulent Transfer of Shares, Companies Act 2013, Jurisdiction.

B) CASE DETAILS

• i) Judgement Cause Title: Chalasani Udaya Shankar and Others v. M/s. Lexus Technologies Pvt. Ltd. and Others

• ii) Case Number: Civil Appeal Nos. 5735-5736 of 2023

• iii) Judgement Date: 09 September 2024

• iv) Court: Supreme Court of India

• v) Quorum: Hon’ble Justices Sanjiv Khanna and Sanjay Kumar

• vi) Author: Justice Sanjay Kumar

• vii) Citation: [2024] 9 S.C.R. 235

• viii) Legal Provisions Involved:

  • Companies Act, 2013:
    • Section 59 (Rectification of Register of Members)
    • Section 88 (Maintenance of Registers)
    • Section 241 (Oppression and Mismanagement)
    • Sections 447 and 448 (Fraud and False Statements)
  • National Company Law Tribunal Rules, 2016 (Rule 70(5))

• ix) Judgments Overruled by the Case: None specifically mentioned.

• x) Case Related to Law Subjects: Corporate Law, Civil Procedure, Fraud.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The appellants, majority shareholders of M/s. Lexus Technologies Pvt. Ltd., alleged fraudulent removal of their names from the company’s Register of Members. The company and its directors were accused of manipulating records and submitting false documents to the Registrar of Companies. The NCLT and NCLAT dismissed their claims, citing insufficient evidence and lack of locus standi. The Supreme Court scrutinized the procedural and evidentiary lapses by the lower forums and reinstated the petition for detailed consideration.

D) FACTS OF THE CASE

1. Corporate Structure and Shareholding:

   • The appellants acquired shares constituting 94.8% of the company’s equity. This was formalized through Form SH-4 and backed by share certificates.
   • Payment of ₹14.67 crore was made to the former shareholder, Mantena Narasa Raju, for this acquisition.

2. Dispute Origin:

   • The appellants discovered discrepancies in the company’s financial filings for 2014-17, indicating their shareholding had been erased.
   • Allegations were made against the directors and an associated Chartered Accountant for falsifying records.

3. Legal Proceedings:

   • The NCLT initially passed an interim order highlighting factual conflicts that warranted further inquiry.
   • In subsequent proceedings, the Acting President of the NCLT summarily dismissed the petition without evaluating evidence in detail.

E) LEGAL ISSUES RAISED

1. Whether the appellants had valid locus standi as shareholders to file the petition.
2. Whether the share transfer and issuance were genuine and lawful.
3. Whether the petition was barred by limitation under the Companies Act, 2013.
4. Whether NCLT had jurisdiction to adjudicate allegations involving fraud.
5. Whether the appellants were entitled to rectification of the Register of Members.

F) PETITIONER/APPELLANT’S ARGUMENTS

1. Validity of Share Transfer:

   • The appellants asserted that proper share transfer documentation, including Form SH-4, was duly executed and signed.

2. Fraudulent Manipulation of Records:

   • The directors falsified financial filings, omitting the appellants’ ownership.

3. Timely Action:

   • The petition was filed promptly after discovering the discrepancies in 2018.

4. Jurisdiction of NCLT:

   • The appellants argued that Section 59 conferred exclusive jurisdiction to the NCLT to decide such disputes.

G) RESPONDENT’S ARGUMENTS

1. Disputed Locus Standi:

   • The respondents claimed the appellants were not valid shareholders, alleging forgery of share certificates.

2. Alternative Explanation for Fund Transfers:

   • The ₹14.67 crore was characterized as a loan, arranged through intermediaries.

3. Jurisdictional Challenge:

   • They argued that the matter involved fraud, requiring adjudication by a civil court.

4. Limitation Period:

   • The petition was alleged to be time-barred.

H) JUDGEMENT

a. Ratio Decidendi

• The Supreme Court held that the NCLT must evaluate factual and documentary evidence comprehensively.
• It reaffirmed the NCLT’s jurisdiction under Section 59 for rectification-related disputes, even involving fraud.

b. Obiter Dicta

• Procedural lapses in analyzing evidence undermine judicial efficacy and fairness.
• Issues of fraud can fall within NCLT’s domain when linked to rectification.

c. Guidelines

1. NCLT must assess disputes based on the preponderance of probabilities.
2. Allegations of fraud, when central to rectification, should not automatically oust NCLT’s jurisdiction.
3. Procedural fairness mandates consideration of all evidence and affidavits.

I) CONCLUSION & COMMENTS

The Supreme Court restored the petition for fresh consideration, highlighting the importance of procedural justice. The judgment underscores the expansive scope of Section 59, allowing NCLT to resolve fraud allegations intertwined with rectification disputes.

J) REFERENCES

a. Important Cases Referred

1. Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. (1998) 7 SCC 105
2. Adesh Kaur v. Eicher Motors Ltd. (2018) 7 SCC 709
3. Shashi Prakash Khemka v. NEPC MICON (2019) 18 SCC 569
4. IFB Agro Industries Ltd. v. SICGIL India Ltd. (2023) 4 SCC 209

b. Important Statutes Referred

1. Companies Act, 2013
2. National Company Law Tribunal Rules, 2016