NCLT: Registered Society Cannot Seek Rectification Of Company Members’ Share Register Under Section 59 of Companies Act

NCLT: Registered Society Cannot Seek Rectification Of Company Members’ Share Register Under Section 59 of Companies Act

The matter involved Chinta Mohana Rao, along with 98 other members, and Hyderabad Hi-Tech Textile Park on a Share Subscription Agreement

The Hyderabad bench of the National Company Law Tribunal (NCLT) has held that a company petition filed by a Society registered under the Andhra Pradesh Societies Registration Act, 2001, for rectification of the share register of the members of a Company under Section 59 of the Companies Act, 2013, is not maintainable.

The bench comprising Dr. N. Venkata Ramakrishna Badarinath (Judicial Member) and Charan Singh (Technical Member) stated that the Society was not a 'person' under the Companies Act since it had no nexus with the affairs of the Company, which allotted the shares.

The tribunal explained, “The phrase ‘person' under Section 59 of the Companies Act is not defined in the Act. However, phrases such as 'other person' and 'any other person' are referred to in some of the provisions of the Companies Act, namely, Section 147(3), which deals with the liability of the auditor for contravening the provisions of the Act, and Section 213(b)(i), which provides for investigation into the affairs of a company. The phrase 'any other person' used supra expressly denotes the nexus between the 'person' refereed in the above Sections with the affairs of a Company.”

It further stated, “Therefore, it can be said that a 'person' who is a stranger to the affairs of the Company, cannot fit in the phrase 'any other person' under Section 59 of the Companies Act. This is because of the Latin maxim 'Ejusdem Generis', a rule normally followed to interpret, where a law lists specific classes of persons or things and then refers to them in general. The general statements only apply to the same kind of persons or things specifically listed.”

On 02 September 2006, entrepreneur associates Chinta Mohana Rao and 98 others and Hyderabad Hi-Tech Textile Park Pvt. Ltd. (company/respondent No.1) entered a Share Subscription Agreement (SSA).

Accordingly, the entrepreneur associates were allotted the shares. However, the share certificates were not delivered to them nor were their names entered in the register of members.

The investors who became members of the company by virtue of SSA, formed a welfare society Hyderabad Hi-tech Textile Park Members Welfare Society. The Society is registered under the Andhra Pradesh Societies Registration Act.

The Society filed a company petition before the NCLT under Section 59 of the Companies Act. It sought directions from the tribunal to the Registrar of Companies for rectifying the register of members by entering the names of the allottees as per SSA and Detailed Project Report (DPR) certified by the Infrastructure Leasing & Financial Services (IL&FS) Limited.

The Society contended there was an intentional delay in delivering the share certificates to the members who were allotted shares through SSA and whose names were mentioned in the DPR for 2006.

On the other hand, the Company opposed the petition. It argued that there being no privity of contract between the Society and the Company, the Society had no locus standi to file the petition. It maintained that a Society registered under the AP Societies Act, could not maintain a petition for rectification of share register of the members of a Company registered under the Companies Act.

The issue before the tribunal was whether a Society registered under the AP Societies Act could maintain a petition for rectification of the share register of the Company’s members.

As per Section 59 of the Companies Act, the rectification of the register of members applies:

• If the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the tribunal, or to a competent court outside India, specified by the Central government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register.

On perusal of Section 59 of the Companies Act, the bench noted that if the name of any person was omitted from the register or unnecessary delay took place in entering it in the register, the 'person aggrieved', or any 'member' of the company, or the 'company', could appeal before the NCLT for rectification.

The tribunal observed that Section 2(20) and Section 2(55) expressly excluded Society from the category of 'member' and 'company' under Section 59. Further, a Society registered under the Societies Registration Act was not a juristic person by virtue of being a body corporate like a company registered under the Companies Act.

On the issue of whether the Society could be considered as 'the person aggrieved' under Section 59, the bench held that a 'person' who was a stranger to the affairs of the Company could not fit in the phrase 'any other person'.

It held that no nexus between the affairs of the Society and the Company was established through pleadings. The tribunal further ruled that the Society could not fall under the category of 'person' for the purpose of Section 59 of the Companies Act. Hence, could not be an aggrieved person.

The bench added, “Moreover, assuming that, the petitioner society herein can be construed as 'the person aggrieved' for the purpose of Section 59 in terms of Rule 19 of the AP Societies Act, any Society registered under it was entitled to initiate legal proceedings, touching or concerning any property or any right or claim of the society and not beyond.”

Thus, the NCLT held that the Company petition filed by the Society for rectification of the share register of members was not maintainable.