Issues Relating to Allotment Of Share Capital, Alteration, Rectification of the Register of Members within The Jurisidction Of NCLT

The Delhi High Court in case SAS HOSPITALITY PVT LTD & ANR versus SURYA CONSTRUCTIONS PVT LTD & ORS CS (COMM) 1496/2016, I.As. 4565/2014, 8964/2014, 2523/2017 &  2524/2017  while dealing with the issue relating to allotment of share capital, alteration and rectification of register of member  observed as under:

  1. Before going into the question as to whether this Court has the jurisdiction to entertain and try the present suit and grant reliefs prayed for, it is necessary to analyze the scheme of the Companies Act, 2013, along with the Constitution of NCLTY. The NCLT has been vested with powers that are far reaching in respect of management and administration of Companies. The said powers of NCLT include powers as broad as “regulation of conduct of affairs of the Company” under section 242(2)(a)., as also various other specific powers. NCLT is a Tribunal which has been constituted to have exclusive jurisdiction in the conduct of affairs of a Company and its powers can be contrasted with that of CLB under the un amended Companies Act,1956

The suit was filed on the basis of the following allegations

a) That the Defendant Nos.5 to 9 were allotted shares of the Company in an illegal and clandestine manner on 5th October,

b) That the said allotment was made known by virtue of returns filed on 7th December,

c) That the allotment of shares was done in an illegal and unlawful manner by transferring the moneys belonging to the Company and showing artificial deposit of Rs.1.6 crores. In fact, the same amount of Rs.48 Lakhs belonging to the Company was rotated repeatedly to show that the Defendant Nos.5 to 9 had paid the Company between 6th and 9th September, 2013, whereas in fact they had not made the said payments.

d) That in a fraudulent manner the shareholding of the Plaintiff in the Company, which was to the tune of 99.96%, was diluted to 21.44%

e) That the share warrants, which were purportedly issued on 30th March, 2013, were illegal as the share capital did not permit issuance of share warrants. Moreover, share warrants could only be issued by a public limited company and not by a private limited company.

f) That by circulating the same amount on four different occasions and showing that the Defendant Nos.5 to 9 had subscribed to the share capital, allotment of share was made in their names, which is completely illegal.

While discussing the matter , the Hon’ble Judge observed  “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 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 all. 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.


Leave a Reply

Your email address will not be published. Required fields are marked *