# Chalasani Udaya Shankar and others v. M/s. Lexus Technologies Pvt. Ltd. and others

- **Citation:** 2024 INSC 671
- **Court:** Supreme Court of India
- **Decided:** 2024-09-09
- **Case number:** Civil Appeal Nos. 5735-5736 of 2023
- **Bench:** Sanjiv Khanna, Sanjay Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chalasani-udaya-shankar-and-others-v-m-s-lexus-technologies-pvt-ltd-and-others-37957
- **Pages:** 22

## Headnote

NCLT and NCLAT, if justified in dismissing the company petition
by the appellant seeking rectification of the Register of Members
of respondent No.1-Company by entering their names therein
u/ss. 59 and 88 of the Companies Act, 2013, and to initiate
action against respondent Nos. 2, 3 and 4, for oppression and
mismanagement, and criminal proceedings u/ss. 447 and 448 of
the 2013 Act, for committing fraud.
Headnotes†
Companies Act, 2013 - ss. 59 and 88 - Rectification of
registrar of members - Allegations of fraudulent transfer
of shares and mismanagement in the company - Company
petition by the appellant seeking rectification of the Register
of Members of respondent No.1-Company by entering their
names therein u/ss. 59 and 88, and to initiate action against
respondent Nos. 2-4, for oppression and mismanagement, as
also criminal proceedings u/ss. 447 and 448 for committing
fraud - Dismissed by the NCLT - Appeal thereagainst and IA
also dismissed - Correctness:
Held: National Company Law Tribunal exercising jurisdiction u/s.
59 has to examine the factual issues to ascertain the substance of
the issue before it - Expression 'rectification' connotes something
that ought to have been done but, by error, was not done, or what
ought not to have been done but was done, requiring correction -
Phrase 'sufficient cause' in s. 59 is to be tested in relation to
the statutory mandate thereof-anything done or omitted to be
done in contravention of the Act of 2013 or the Rules framed
thereunder - If, on facts, an open-and-shut case of fraud is made
out in favour of the person seeking rectification, the NCLT would
be entitled to exercise such power u/s. 59 - Proper verification of
* Author
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the assertions made by the parties was a sine qua non - Acting
President of the NCLT, by failing to carry out the said exercise,
failed to discharge the mandate of law - Exercise of power u/s.
59 is to be undertaken in right earnest by examining the material,
evidence, and the facts on record - This was not done, rather, a
narrow view was taken without calling upon respondent No. 2 to
prove the veracity of the contrary story put forth by him, despite
receiving monies from the appellants - Facts, material, and evidence
had to be examined in the context of the underlying facts, which
would have included the receipt of monies, the signatures on the
transfer deeds, etc. - Questions of fact must be decided on the
principle of preponderance of probabilities, giving due weight to
the specific facts, as found, so as to draw the conclusion that a
reasonable person, acquainted with the relevant field, would draw
on the basis of the same facts - Interim order passed by the
Member (Judicial) of the NCLT indicated, in clear terms, the issues
that arose for consideration and the inquiry required to determine
the same - However, the President of the NCLT ignored the said
interim order, and chose to summarily dismiss the petition, without
considering the material already placed on record and without
further evidence being adduced - Also, the NCLAT did not even
get the facts right - Judgment in Company Petition, in Company
Appeal and I.A. set aside - Company Petition restored to the file
of the NCLT, for consideration afresh on merits and in accordance
with law, upon proper appreciation of evidence - Companies Act,
1956 - s. 155 (s.111A thereafter) - National Company Law Tribunal
Rules, 2016 - r. 70(5).

## Text

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[2024] 9 S.C.R. 235 : 2024 INSC 671
Chalasani Udaya Shankar and others
v.
M/s. Lexus Technologies Pvt. Ltd. and others
(Civil Appeal Nos. 5735-5736 of 2023)
09 September 2024
[Sanjiv Khanna and Sanjay Kumar,* JJ.]
Issue for Consideration
NCLT and NCLAT, if justified in dismissing the company petition
by the appellant seeking rectification of the Register of Members
of respondent No.1-Company by entering their names therein
u/ss. 59 and 88 of the Companies Act, 2013, and to initiate
action against respondent Nos. 2, 3 and 4, for oppression and
mismanagement, and criminal proceedings u/ss. 447 and 448 of
the 2013 Act, for committing fraud.
Headnotes†
Companies Act, 2013 - ss. 59 and 88 - Rectification of
registrar of members - Allegations of fraudulent transfer
of shares and mismanagement in the company - Company
petition by the appellant seeking rectification of the Register
of Members of respondent No.1-Company by entering their
names therein u/ss. 59 and 88, and to initiate action against
respondent Nos. 2-4, for oppression and mismanagement, as
also criminal proceedings u/ss. 447 and 448 for committing
fraud - Dismissed by the NCLT - Appeal thereagainst and IA
also dismissed - Correctness:
Held: National Company Law Tribunal exercising jurisdiction u/s.
59 has to examine the factual issues to ascertain the substance of
the issue before it - Expression 'rectification' connotes something
that ought to have been done but, by error, was not done, or what
ought not to have been done but was done, requiring correction -
Phrase 'sufficient cause' in s. 59 is to be tested in relation to
the statutory mandate thereof-anything done or omitted to be
done in contravention of the Act of 2013 or the Rules framed
thereunder - If, on facts, an open-and-shut case of fraud is made
out in favour of the person seeking rectification, the NCLT would
be entitled to exercise such power u/s. 59 - Proper verification of
* Author
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the assertions made by the parties was a sine qua non - Acting
President of the NCLT, by failing to carry out the said exercise,
failed to discharge the mandate of law - Exercise of power u/s.
59 is to be undertaken in right earnest by examining the material,
evidence, and the facts on record - This was not done, rather, a
narrow view was taken without calling upon respondent No. 2 to
prove the veracity of the contrary story put forth by him, despite
receiving monies from the appellants - Facts, material, and evidence
had to be examined in the context of the underlying facts, which
would have included the receipt of monies, the signatures on the
transfer deeds, etc. - Questions of fact must be decided on the
principle of preponderance of probabilities, giving due weight to
the specific facts, as found, so as to draw the conclusion that a
reasonable person, acquainted with the relevant field, would draw
on the basis of the same facts - Interim order passed by the
Member (Judicial) of the NCLT indicated, in clear terms, the issues
that arose for consideration and the inquiry required to determine
the same - However, the President of the NCLT ignored the said
interim order, and chose to summarily dismiss the petition, without
considering the material already placed on record and without
further evidence being adduced - Also, the NCLAT did not even
get the facts right - Judgment in Company Petition, in Company
Appeal and I.A. set aside - Company Petition restored to the file
of the NCLT, for consideration afresh on merits and in accordance
with law, upon proper appreciation of evidence - Companies Act,
1956 - s. 155 (s.111A thereafter) - National Company Law Tribunal
Rules, 2016 - r. 70(5).
Case Law Cited
Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers
Pvt. Ltd. and others [1998] Supp. 1 SCR 413 : (1998) 7 SCC
105; High Court of Judicature at Bombay through its Registrar v.
Udaysingh and others [1997] 3 SCR 803 : (1997) 5 SCC 129; Jai
Mahal Hotels Private Limited v. Devraj Singh and others [2015] 11
SCR 323 : (2016) 1 SCC 423; Adesh Kaur v. Eicher Motors Limited
and others [2018] 5 SCR 200 : (2018) 7 SCC 709; Dhulabhai v. State
of Madhya Pradesh and another [1968] 3 SCR 662 - relied on.
Standard Chartered Bank v. Andhra Bank Financial Services Limited
[2006] Supp. 2 SCR 1 : (2006) 6 SCC 94; Shashi Prakash Khemka
(Dead) through legal representatives and another v. NEPC MICON
(Now NEPC India Limited) and others (2019) 18 SCC 569; IFB
[2024] 9 S.C.R.
237
Chalasani Udaya Shankar and others v.
M/s. Lexus Technologies Pvt. Ltd. and other
Agro Industries Limited v. SICGIL India Limited and others [2023]
1 SCR 527 : (2023) 4 SCC 209; Smiti Golyan and others v. Nulon
India Ltd. and others Company Appeal (AT) No. 222 of 2018,
decided on 25.03.2019 - referred to.
List of Acts
Companies Act, 2013; Companies Act, 1956; National Company
Law Tribunal Rules, 2016.
List of Keywords
Company petition; Rectification of the Register of Members;
Oppression and mismanagement; Fraud; Fraudulent transfer of
shares; Rectification; Sufficient cause; Jurisdiction of the civil
court; Verification of the assertions made by parties; Principle of
preponderance of probabilities; Interim order.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.5735-5736 of
2023
From the Judgment and Order dated 10.04.2023 of the National
Company Law Appellate Tribunal, Chennai in CA(AT) (CH) No.44 of
2021 and IA No.548 of 2021
Appearances for Parties
Dhruv Mehta, Sr. Adv., P B A Srinivasan, V. Aravind, Keith Varghese,
Ms. Srishti Bansal, Sumit Swami, Ms. Aanchal Pundir, Amit K. Nain,
Advs. for the Appellants.
Mrs. Aishwarya Bhati, A.S.G., Byrapaneni Suyodhan, Ms. Tatini Basu,
Kumar Shashank, Ruchi Kohli, Navanjay Mahapatra, Shiv Mangal
Sharma, Prasenjeet Mahapatra, Ms. BLN Shivani, Amrish Kumar,
Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Sanjay Kumar, J.
1.
Orders alike, dismissing their claims, having been passed by the
original and appellate forums, Chalasani Udaya Shankar, Sripathi
Sreevana Reddy and Yalamanchilli Manjusha are in appeal under
Section 423 of the Companies Act, 2013 [for brevity, 'the Act of 2013'].
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2.
The appellants had approached the National Company Law Tribunal,
Hyderabad/Amaravati Bench [for brevity, 'the NCLT'], by way of
Company Petition No. 667/59 & 241/HDB/2018, seeking rectification
of the Register of Members of M/s. Lexus Technologies Pvt. Ltd.,
Vijayawada, Andhra Pradesh, respondent No.1, by entering their
names therein under Sections 59 and 88 of the Act of 2013, and to
initiate action against Mantena Narasa Raju, Appa Rao Mukkamala
and Suresh Anne, respondent Nos. 2,3 and 4, for oppression and
mismanagement, apart from criminal proceedings under Sections
447 and 448 of the Act of 2013 for committing fraud.
3.
Their case, as set out in the Company Petition, was as follows: M/s.
Lexus Technologies Pvt. Ltd. was incorporated under the provisions
of the Companies Act, 1956, on 28.03.2000. Its authorized share
capital was ₹1,50,00,000/-, divided into 15,00,000 equity shares of
₹10/- each. The issued, subscribed and paid-up capital of the company
was ₹1,10,96,230/-, divided into 11,09,623 equity shares of ₹10 each.
The company is in the business of software development and ancillary
activities and it acquired land at Chinnakakani Village in Guntur District
in January, 2002, for establishing its infrastructure. On 09.03.2004,
Mantena Narasa Raju, respondent No.2, had entered into a share
purchase agreement with one C. Suresh, shareholder of the company,
and acquired 10,51,933 equity shares, representing 94.8% of the
equity share capital of the company. Thereafter, Mantena Narasa
Raju and Appa Rao Mukkamala, respondent Nos. 2 and 3, were
appointed as Directors of the Company on 02.03.2004. Suresh Anne,
respondent No.4, became a Director of the company on 30.09.2004.
While so, on 18.04.2015, the appellants acquired the equity shares
held by Mantena Narasa Raju, respondent No.2, i.e., 10,51,933
equity shares, by executing Securities Transfer Deeds in Form No.
SH-4. Chalasani Udaya Shankar, appellant No.1, acquired 3,51,933
equity shares, representing 31.72% of the shareholding, while Sripathi
Sreevana Reddy, appellant No.2, and Yalamanchilli Manjusha,
appellant No.3, acquired 3,50,000 equity shares each, representing
their 31.54% individual shareholding. Share certificates were issued
to them, signed and authenticated by Appa Rao Mukkamala and
Suresh Anne, respondent Nos. 3 and 4. The appellants claim to
have paid consideration of ₹14,67,41,557/- to Mantena Narasa Raju,
respondent No.2, towards the acquisition of their shares - Chalasani
Udaya Shankar, appellant No.1, paid ₹4,90,91,557/- while Sripathi
[2024] 9 S.C.R.
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Chalasani Udaya Shankar and others v.
M/s. Lexus Technologies Pvt. Ltd. and other
Sreevana Reddy and Yalamanchilli Manjusha, appellant Nos.2 and
3, each paid ₹4,88,25,000/- individually.
4.
It is the further case of the appellants that they shared a very
congenial and cordial relationship with Mantena Narasa Raju, Appa
Rao Mukkamala and Suresh Anne, respondent Nos.2, 3 and 4, and
they left the complete managerial control with them despite being
the majority shareholders. They claim that they had no suspicion
whatsoever against the said persons, but due to their failure in
conducting Annual General Meetings during the financial years
2014-15, 2015-16 and 2016-17, the Registrar of Companies struck
off the name of M/s. Lexus Technologies Pvt. Ltd. from the Register
of Companies on 21.07.2017, in exercise of power under Section
248 of the Act of 2013. The appellants claim that, it was only upon
browsing the online portal, they came to know that the said persons
had thereafter filed annual returns and financial statements for the
years in question with false information, by erasing their shareholding
from the records of the company. The appellants allege that the
aforesaid persons committed various acts of oppression with the
intention of grabbing the company property. They, accordingly, prayed
for rectification of the Register of Members of the company, by entering
their names, and to initiate appropriate action against respondent
Nos. 2, 3 and 4. Allegations were also made against V. Vasudev
Reddy, respondent No.5, the Chartered Accountant associated
with the company, to the effect that he was a co-conspirator and
action was sought against him. The appellants also sought various
interim reliefs pending disposal of the Company Petition. In the first
instance, the NCLT directed status quo to be maintained as regards
the company's assets and invited objections from the other side.
5.
The company, respondent No.1, filed a counter opposing the grant
of interim reliefs. Therein, it contended that the appellants could not
allege oppression and mismanagement as they were not members of
the company and were, in fact, seeking rectification of the Register
of Members in that regard. The transfer of shares, as claimed by the
appellants, was denied and, in consequence, their locus to maintain
the company petition was challenged. Issue of limitation was also
raised as the appellants' claim was that they had acquired the shares
on 18.04.2015 but the company petition was filed only on 09.11.2018,
i.e., after the lapse of over three years. The company alleged that
it had received emails from respondent Nos. 3 and 4 stating that
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the appellants had forged their signatures on the purported share
certificates and the company asserted that the NCLT would have
no jurisdiction to adjudicate such allegations of fraud and only the
competent civil court could decide the same.
6.
A reply was also filed by Mantena Narasa Raju, respondent No.2,
contesting the interim reliefs sought. While reiterating the contentions
of the company in its counter, he disputed the appellants' ownership
of the shares. He asserted that he never sold any shares to the
appellants and that they were complete strangers to him. He claimed
that he had borrowed a sum of ₹5.66 crore from one L. Ramesh, his
friend, who agreed to lend him the money through banking channels,
by arranging for a total sum of ₹14.66 crore, out of which he would
take back ₹9 crore and the balance ₹5.66 crore could be retained
by respondent No.2. He further claimed that L. Ramesh arranged
for his known persons to remit the amounts in his bank account and
it was in this context that the appellants deposited the total sum of
₹14,66,39,400/- in his account. He further claimed that he returned
the sum of ₹9 crore, as per the instructions of L. Ramesh, to one
Swarna Bhaskar H. (₹7.5 crore) and to one Venkata Surya R (₹1.5
crore), i.e., in all, ₹9 crore. He further claimed that L. Ramesh forcibly
obtained his signatures on several documents, including white papers,
letter heads, blank non-judicial stamp papers and green sheets,
at that time. He alleged that those blank papers might have been
handed over to the appellants by L. Ramesh and they fabricated the
documents. He pointed out that the share transfer deeds put forth
by the appellants projected a total consideration of ₹14,67,41,557/- ,
but only the sum of ₹14,66,39,400/- had been remitted, leaving
a balance of ₹1,02,157/-. He also alleged that the format of the
appellants' share certificates was not that of the company and the
folio numbers therein were different, indicating that they had been
fabricated by the appellants.
7.
The appellants filed separate rejoinders to the replies filed by
respondent Nos. 1 and 2. Therein, they reiterated their claims
and asserted that their petition was within time. They denied the
financial transactions allegedly arranged by L. Ramesh and the
alleged fabrication of documents by them. They pointed out that the
signature of respondent No.2 appeared in the share transfer forms
at the correct place, manifesting that the same were not fabricated
on signed blank papers. As regards the shortfall in the consideration,
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they asserted that a portion of the stamp duty on the transfer was
to be borne by respondent No.2 and it was accordingly adjusted,
leading to the lesser sum of ₹14,66,39,465/- being paid.
8.
Thereupon, the NCLT, through the Member (Judicial), passed an
interim order on 27.06.2019. Having considered the matter, the
NCLT noted as follows: Respondent No.2 had addressed letter
dated 29.12.2014 (Annexure A-1) to the Board of Directors of the
company expressing his intention to sell his shareholding therein.
A Board Meeting was held on 24.01.2015 to consider his request
and it was found that there was no buyer within the existing
shareholders who was willing to purchase the shares of respondent
No. 2. This was stated to have been communicated to respondent
No.2 leaving it open to him to make his own arrangement for sale
of his shares to outsiders. It was in these circumstances that the
appellants purchased the shares of respondent No.2. By e-mail dated
20.04.2015 (Annexure A-4), respondent No.3 sought the approval
of the other shareholders for sale of these shares in favour of the
appellants. A meeting was held on 27.04.2015 in this regard and
share certificates were also issued on the said date to the appellants.
These share certificates were signed by respondent Nos. 3 and
4 as Directors of the company. It was noted that respondent No.
2 had contested this claim, by asserting that respondent Nos. 3
and 4 were not even in India on the said date and that the share
certificates were fabricated. Various discrepancies were pointed out
by him in the said certificates, including absence of the signature of
the company secretary. The NCLT, however, noted that respondent
No.2 did not dispute the receipt of monies from the appellants.
Further, the NCLT also noted that respondent No.2 did not dispute
his signatures appearing in the share certificates and share transfer
forms but his attempt was to explain the same, by claiming that
L. Ramesh had obtained blank papers from him which had been
misused. Noting the details of the financial transactions sought to
be put forth by respondent No.2 in relation to the receipt of ₹14.66
crore, the NCLT observed that this aspect needed to be probed
as the undisputed fact remained that the said sum was remitted
into the account of respondent No.2. The NCLT observed that it
was necessary to go into the issue as to whether this amount was
actually remitted at the instance of L. Ramesh as there was no
evidence at that point of time in proof of the claims of respondent
No.2 in that regard. The NCLT noted that it was a question to be
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enquired into as to whether respondent No.2 has returned ₹5.66
crore, which he claimed to have received as a loan, and this was
a question to be thoroughly looked into during a full inquiry. The
NCLT further noted that on the strength of these oral contentions, it
was not possible to accept at that stage that the said monies were
given to him only as a loan and not for the sale of his shares. His
further claim that he had signed various blank papers, judicial stamp
papers, letter heads, etc. also required to be examined at the time
of final disposal of the matter. It was noted that respondent No.2
was a doctor by profession. The NCLT went on to observe that
Form SH-4 was a printed form, as were the share certificates, and
it was not believable that the same could have been fabricated on
signed blank papers. Dealing with the contention that respondent
Nos. 3 and 4 were not even in the country on the date in question,
the NCLT noted that none had appeared on their behalf and they
had not chosen to file any counter in support of the stand taken by
them. As on that date, per the NCLT, respondent No.2 relied upon
the communication allegedly received by him from respondent
Nos. 3 and 4, but the authenticity of the same still remained to be
proved, as respondent Nos. 3 and 4 had not filed any affidavit. The
NCLT also noted that there were conflicting materials produced by
both sides and at that stage, it could not be decided whether the
signatures in the share certificates did not belong to respondent
Nos. 3 and 4 and the issue required to be thoroughly examined at
the time of final hearing.
9.
Dealing with the issue of limitation, the NCLT observed that the
case of the appellants was that they came to know of their names
being excluded only after the company filed financial accounts
and statements for the years 2014-15, 2015-16 and 2016-17,
and the petition was filed within three years from the date of such
knowledge. Opining that limitation was a mixed question of fact
and law, the NCLT stated that it needed to be examined at the
final hearing stage, after the parties filed all their documents. The
NCLT also rejected the contention of the respondents that it had
no jurisdiction to try the petition as it involved issues of fraud, etc.
The NCLT, therefore, observed that an interim order restraining the
company and respondent Nos. 2 to 4 from either disposing of or
creating encumbrances over the assets of the company would not
affect either of the parties, pending disposal of the main petition, and
accordingly granted an interim order to that effect.
[2024] 9 S.C.R.
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10. This being the tone and tenor of the NCLT's interim order, the
final order dated 21.08.2021 passed by the NCLT, dismissing the
Company Petition, makes for an interesting reading. Be it noted that
the interim order was passed by the Member (Judicial) of the NCLT
and the final order came to be passed over two years later by its
Acting President. Significantly, no reference whatsoever was made
to the 46-page interim order in the body of the final order. It is as if
the Acting President of the NCLT was completely oblivious of what
had transpired in the matter earlier, though a passing reference was
made by him to an interim order passed on 22.10.2019, impleading
three more respondents in the Company Petition.
11. Respondent Nos. 1 and 2 again filed counters in the main Company
Petition essentially replicating the stands taken by them in their
earlier counters. The appellants also filed their rejoinder thereto
along with several documents. Having referred to the facts, as set
out in the Company Petition, the Acting President of the NCLT noted
that separate counters had been filed by respondent Nos. 1 and 2,
on the one hand, and by the newly impleaded respondent Nos. 8
to 10, who claimed independent rights in the same shareholding.
Respondent Nos. 3 and 4 had filed Memos adopting the counter filed
by the company, respondent No.1. Perusal of the judgment dated
21.08.2021 reflects that the Acting President of the NCLT extracted
the gist of the pleadings of the parties and went on to reproduce the
caselaw cited by them at great length. His actual findings commence
from paragraph 9 at page 60 of his 67-page order. The points that
fell for consideration were set out by him in paragraph 9.1, which
reads as under:
'(1) Whether the Petition filed is well within the time.
(2) Whether purported transfer of shares is in accordance
with the provisions of the Companies Act and in
accordance with clauses of the Articles of Association.
(3) Whether the amount purportedly paid should be
treated as consideration to the shareholders of the
Company, by the Petitioners.
(4) Whether the share certificates purportedly issued to
the Petitioners are genuine.
(5) Whether any relief can be granted to the Petitioners
or whether the petition is maintainable.'
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12. On the issue of limitation in point No.1, the Acting President baldly
summed up that filing of the petition by the appellants was an
afterthought and, therefore, the question of limitation did not arise,
as the petition was not filed within the limitation period of three
years. This cryptic approach in para 9.2 was not in keeping with
the observation of the Member (Judicial) of the NCLT in the interim
order that limitation, being a mixed question of law and fact, required
to be examined fully.
13. On point No.2, the Acting President rejected the case of the appellants,
by way of brief para 9.3, completely ignoring the points set out by
the Member (Judicial) in the interim order and the material placed
on record, such as the share transfer forms, share certificates and
emails/ correspondence, which supported the case of the appellants.
His categorical finding that 'not a single document existed between
the parties to show that there was a transfer of shares and not a
single document was filed to show that the existing shareholders
were given an opportunity to buy the shares' was clearly contrary
to the material available on record, viz., the emails, transfer forms,
share certificates, etc. No doubt, the genuineness of these documents
required to be verified but without even venturing to do so, they could
not have been dismissed thus.
14. As regards point No.3, the Acting President observed that there
was no covering letter or correspondence to support the claim that
the amount transferred into the account of respondent No.2 was for
purchase of shares. He noted the discrepancy in the sale consideration
amount to the extent of ₹1,02,157/- and the claim of respondent No.2
that one L. Ramesh was also involved. He then went on to surmise
that there were some other transactions between the parties and
the company had been entangled in the dispute for reasons best
known to the parties. On that basis, he strangely concluded that it
could not be accepted that the monies transferred into the account
of respondent No.2 were for purchase of shares. The version put
forth by respondent No.2, as rightly pointed out in the interim order,
required to be proved and could not have been taken to be the truth
straightaway in this abrupt and self-serving manner.
15. As regards point No.4, the Acting President opined that the appearance
of the share certificates was dubious and the numbers therein were
also completely different. He held that, without going deep into the
aspect, it could be concluded that the share certificates were not
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genuine and were fabricated. Again, no evidence whatsoever was
led or considered on the issue. Surprisingly so, as the appellants
produced the original share certificates given to them along with their
rejoinder and filed applications for production of the original record
of shareholders of the company and their share certificates of 2004,
Board Resolutions, Minutes of Meetings, etc.
16. On point No.5, the Acting President concluded that the appellants
had failed to prove their case and had not bothered to realize their
rights as shareholders, if at all they had considered themselves to be
so. He observed that the very manner and conduct of the appellants
indicated that the transaction which seems to have taken place
between the parties was completely different, without involving the
company, and for no reason, the company had been entangled in
the dispute. The case of the appellants was held to be fraudulent in
nature and devoid of fact and law. He, accordingly, dismissed the
case with costs of ₹5,00,000/-.
17. Aggrieved by the dismissal of their petition, the appellants approached
the National Company Law Appellate Tribunal, Chennai Bench
(NCLAT), by way of Company Appeal (AT) (CH) No. 44 of 2021.
They also filed I.A. No. 548 of 2021 therein for interim relief pending
its disposal. However, the NCLAT dismissed their appeal and I.A. by
judgment dated 10.04.2023. Speaking for the Bench, the Member
(Technical) referred to the facts of the case; the contentions of the
parties; the points for consideration set out by the NCLT and its
findings thereon. Thereafter, the relevant provisions of the Act of
2013 were extracted at length and again, reference was made to
the contentions of both sides. Having done so, the NCLAT curiously
concluded that L. Ramesh had remitted through his 'known persons'
the sum of ₹14,66,39,400/- into the bank account of respondent
No. 2. The NCLAT then strangely observed as follows:
'First of all, the money has not been transferred by the
'Appellants' in favour of the 'Respondents'. Secondly, as
admitted in the averments as well as recorded clearly in
the 'impugned order' that, Mr. Lingamaneni Ramesh gave
Rs. 14,67,41,557/- and took back Rs. 9 Crores from the
'Respondents' as such prima-facie this does not seem
to be a clear transaction of payment of money towards
acquisition of shares and consequently allotment of shares
in favour of the 'Appellants' is also not established.'
246
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18. Significantly, the three persons named by the NCLAT in the table in
the very same paragraph as the 'known persons' who paid the monies
are none other than appellant Nos. 2 and 3 and Ms. Vahini Surya
Chalasani, the joint-account holder of appellant No. 1. Therefore,
the conclusion of the NCLAT that the money was not transferred by
the appellants was factually incorrect. Further, the story put forth by
respondent No. 2 as to his friend, L. Ramesh, playing a role in the
transaction was taken to be the biblical truth by the NCLAT though
it was very much in dispute and required to be proved, even as per
the interim order passed by NCLT. As regards the issue of limitation,
the NCLAT simply went by the date of purchase of the shares and
the date of the institution of the Company Petition and concluded
that the same was barred by limitation, without reference to the issue
highlighted by the NCLT in its initial interim order that limitation, being
a mixed question of law in fact, required further examination as to
when the clock would start ticking. The further finding of the NCLAT
that the appellants had not furnished any documentary proof of their
claims was equally bereft of foundation as material had been produced
by them, which was duly taken note of in the NCLT's interim order,
which led it to the opinion that further inquiry was needed on those
aspects. To further compound the patent lack of application of mind
on its part, the NCLAT observed that the appellants failed to produce
their original share certificates pursuant to the NCLT's order dated
18.02.2021, overlooking the fact that the original share certificates
and other documents were, in fact, filed by the appellants along with
their rejoinder dated 22.03.2021. Concluding that the appellants had
failed to cross the first hurdle of locus, the NCLAT held that they
could not maintain the allegation of oppression and mismanagement
which would be available only to a person who is a member of the
company. The NCLAT accordingly dismissed the appeal and the I.A.
as devoid of merit, leading to the filing of these appeals.
19. IA Nos. 171771 and 168458 of 2023 filed in one of these appeals by
the appellants seeking permission to file additional documents are
allowed and the said documents are taken on record. IA No. 72990
of 2024 is also allowed at the sole risk and peril of the appellants,
permitting deletion of the name of respondent No. 6 from the array
of parties.
20. While ordering notice in these appeals on 01.09.2023, this Court
raised certain questions, which the appellants were required to
answer. The questions read as follows:
[2024] 9 S.C.R.
247
Chalasani Udaya Shankar and others v.
M/s. Lexus Technologies Pvt. Ltd. and other
'1.
Why, after acquiring the shares, the appellants did
not come on the Board of Directors?
2.
Why the appellants did not attend or call upon the
Directors to hold the Annual General Meeting(s)?
3.
Why the appellants did not take steps as the annual
accounts were not audited and submitted to them
and with the Registrar of Companies.'
The appellants were directed to file an affidavit dealing with the
aforesaid aspects. Pursuant thereto, Affidavit of Compliance dated
08.12.2023 was filed by the appellants. Therein, apropos the first query
as to why the appellants did not come onto the Board of Directors
after acquiring the shares, they stated that they had purchased
the shares for investment purpose and hence, initially, they did
not take interest in the affairs of the company. They further stated
that they had long-standing business and personal relations with
respondents 3 and 4, who were the Directors of the company, and in
such circumstances, a fiduciary relationship existed between them.
According to them, they did not come onto the Board of Directors
due to these reasons and trusted that respondents 3 and 4 would
continue to run the affairs of the company in accordance with law.
21. As regards the second query posed by this Court as to why they did
not attend Annual General Meetings or call upon the Directors to hold
such meetings, the appellants stated that the name of the company
was struck off by the Registrar of Companies on 21.07.2017 owing
to failure in filing of Annual Returns for the financial years 2014-15,
2015-16 and 2016-17. It was only on coming to know of this that the
appellants claim to have inquired with the Directors and were informed
that the issue would be settled shortly. The Directors are stated to
have informed them orally that there was a complaint filed against
the Directors and the Auditor of the company in Machavaram Police
Station at Vijayawada on 30.12.2013, by one of the shareholders,
and the Directors promised that all issues would be settled and the
Annual Returns would be updated with the Registrar of Companies
along with the names of the investors. They further stated that they
could not file a company petition when the name of the company
was struck off from the rolls of the Registrar of Companies. They
asserted that the name of the company was restored in August, 2017,
but the company filed Annual Returns for the years 2014-15 to 2016-
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17 only on 12.06.2018. It was after this event that the appellants
claim to have found that their names were not in the shareholders'
list and questioned the Directors about such non-inclusion. They
further claim that the Directors assured them that after the police
case was closed, the names of the appellants would be added but
the appellants found out that even after the closure of the case on
30.06.2018, their names were not shown as shareholders. It was in
these circumstances that the company petition was filed before the
NCLT. The appellants asserted that it was due to these reasons that
they could not call for an Annual General Meeting, as they were not
shown as shareholders of the company.
22. In response to the third query as to why they did not take steps
when the annual accounts were not audited and submitted to them
or with the Registrar of Companies, the appellants stated that, as
they were informed that there was a police case against the Auditor
of the company, they could not take any steps to get the accounts
audited and submitted to them. They further stated that due to the
fiduciary relationship between respondents 2 to 4 and the appellants,
they never suspected that the respondents were not holding Annual
General Meetings and were mis-managing the affairs of the company.
Further, the Directors are stated to have promised that the issue
would be settled and that the Annual Returns would be updated with
the Registrar of Companies and that the investors' names would be
updated. However, despite such assurances by the Directors, the
appellants deemed it prudent to inspect the records of the company
by accessing its master data on the MCA portal in 2017 and were
shocked to find that the affairs of the company were being run
contrary to law, as a result of which the name of the company was
struck off by the Registrar of Companies. The appellants also came
to know that their shareholding was not reflected in the Register of
Members and they accordingly filed a composite petition before the
NCLT under Sections 59 and 241 of the Act of 2013.
23. Satisfactory answers having been furnished by the appellants as
aforestated, it would be appropriate at this stage to take note of the
statutory provisions and precedential law relating thereto. Originally,
Section 155 of the Companies Act, 1956, dealt with rectification
proceedings in connection with entry of names in the Register of
Members of a company. Section 155 was omitted with effect from
31.05.1991. Section 111 and Section 111-A were inserted in the
[2024] 9 S.C.R.
249
Chalasani Udaya Shankar and others v.
M/s. Lexus Technologies Pvt. Ltd. and other
Companies Act, 1956, with effect from 31.05.1991 and 20.09.1995
respectively. These provisions corresponded to erstwhile Section
155. Presently, Section 59 of the Act of 2013 and Rule 70(5) of the
National Company Law Tribunal Rules, 2016, deal with rectification.
Rule 70(5) is in pari materia with Section 111(7) of the Companies
Act, 1956.
24. In Ammonia Supplies Corporation (P) Ltd. vs. Modern Plastic
Containers Pvt. Ltd. and others,1 the short question for consideration
was framed thus by this Court: 'Whether in the proceedings under
Section 155 of the Companies Act, 1956, the Court has exclusive
jurisdiction in respect of all the matters raised therein or has only
summary jurisdiction?' It was observed that the very word 'rectification'
in Section 155 of the Companies Act, 1956, connotes something
that ought to have been done but by error was not done or ought
not to have been done but was done, requiring correction. It was
held that the Court has discretion to find out whether the dispute
raised is really for rectification or is of such a nature that, unless
decided first, it would not come within the purview of rectification. It
was further held that, if it is truly a case of rectification, all matters
raised in that connection should be decided under Section 155, but if
it finds adjudication of any matter not falling under it, the Court may
direct a party to get his right adjudicated by a civil court. Noting that
there was nothing in the Companies Act, 1956, expressly barring the
jurisdiction of the civil court, it was observed that where the 'Court' as
defined under the Act is exercising its powers under various sections,
where it has been vested with exclusive jurisdiction, the jurisdiction
of the civil court is impliedly barred. It was, therefore, held that to the
extent the 'Court' has exclusive jurisdiction under Section 155, the
jurisdiction of the civil court is impliedly barred. But for what is not
covered as aforesaid, the civil court would have jurisdiction. Noting
that the jurisdiction of the 'Court' under Section 155 is summary in
nature, it was held that it would be appropriate for the 'Court' to see
for itself whether any document alleged to be forged is said to be
so, only to exclude the jurisdiction of the 'Court' or it is genuinely so.
As the High Court, exercising jurisdiction under Section 155 of the
Companies Act, 1956, had not examined the case in this light, this
Court remanded the matter to the High Court for decision afresh.
1
[1998] Supp. 1 SCR 413 : (1998) 7 SCC 105
250
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The observations in paragraph 26 of the judgment are of relevance
in this regard and are extracted below:
"26. The proviso gave discretion to the court to direct
an issue of law to be tried, if raised. By this deletion,
submission is that the Company Court now itself has to
decide any question relating to the rectification of the
Register including the law and not to send one to the civil
court. There could be no doubt any question raised within
the peripheral field of rectification, it is the court under
Section 155 alone which would have exclusive jurisdiction.
However, the question raised does not rest here. In case
any claim is based on some seriously disputed civil rights
or title, denial of any transaction or any other basic facts
which may be the foundation to claim a right to be a member
and if the court feels such claim does not constitute to be
a rectification but instead seeking adjudication of basic
pillar some such facts falling outside the rectification, its
discretion to send a party to seek his relief before the
civil court first for the adjudication of such facts, it cannot
be said such right of the court to have been taken away
merely on account of the deletion of the aforesaid proviso.
Otherwise under the garb of rectification one may lay
claim of many such contentious issues for adjudication
not falling under it. Thus in other words, the court under it
has discretion to find whether the dispute raised is really
for rectification or is of such a nature that unless decided
first it would not come within the purview of rectification.
The word "rectification" itself connotes some error which
has crept in requiring correction. Error would only mean
everything as required under the law has been done yet
by some mistake the name is either omitted or wrongly
recorded in the Register of the company. ..."
25. In Standard Chartered Bank vs. Andhra Bank Financial Services
Limited,2 a 3-Judge Bench of this Court affirmed the view taken in
Ammonia Supplies Corporation (P) Ltd. (supra) that the jurisdiction
exercised by a Company Court under Section 155 of the Companies
2
[2006] Supp. 2 SCR 1 : (2006) 6 SCC 94
[2024] 9 S.C.R.
251
Chalasani Udaya Shankar and others v.
M/s. Lexus Technologies Pvt. Ltd.