Mohan Ram Prasad Devineni vs Biochemical And Synthetic Products ...

MOHAN RAM PRASAD DEVINENI, S/o Venkata Ranga Rao Devineni, Residing at 8955, Croquet Court, Champions Gate, Florida 33896, USA ...APPELLANT V M/S. BIOCHEMICAL & SYNTHETIC PRODUCTS PRIVATE LIMITED, Represented by its Managing Director, Having registered office at Plot No. 11-6-2029, Phase-II, Sri Venkateshwara Co.op Industries Estate (S.V.C.I.E), Balangar, Hyderabad, Telangana - 500037. ...RESPONDENT NO. 1

REGISTRAR OF COMPANIES, 2nd Floor, Corporate Bhawan, GSI Post, Tattiannaram Nagole, Bandlaguda, Hyderabad - 500068. ...RESPONDENT NO. 2 Present: For Appellant : Ms. R. Moneshaa, Advocate For Respondent : Mr. P.H. Arvindh Pandian, Senior Advocate For Krishna Dev Jagarlamudi, Mr. Vishnu Kanth Mundada, Mr. Shadab Azhar, Mr. Arpit Kumar Mishra & Ms. Shravya Tirunahari, Advocates for R1

JUDGMENT

(Hybrid Mode) [Per: Justice Sharad Kumar Sharma, Member (Judicial)] The Appellant before this Appellate Tribunal is the Applicant in the

proceedings under Section 59 of the Companies Act, 2013, which were registered

Company Appeal (AT) (CH) No. 58/2025 Page 1 of 24 as C.P. No. 3/59/HDB/2024 before the learned NCLT, Hyderabad Bench. The

proceedings initiated by the Appellant, by invoking Section 59 of the Companies

Act, 2013, were ultimately rejected on the ground of non-maintainability.

2. For the purpose of addressing the arguments advanced by the learned

Counsel for the Appellant who has vehemently attempted to bring the

proceedings within the ambit of Section 59 of the Companies Act, 2013, the text

of Section 59 itself becomes necessary and inevitable for a clearer elucidation of

the controversy. Section 59 of the Companies Act, 2013 reads as follows:-

"59. Rectification of Register of Members.

(1) 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 there from, 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.

(2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved.

(3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.

Company Appeal (AT) (CH) No. 58/2025 Page 2 of 24 (4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned."

3. On a plain and literal interpretation of the provisions contained in Section

59 of the Companies Act, 2013, it becomes evident that the provision comes into

effect only when the applicant seeking relief under Section 59 is a shareholder

whose name is required to be entered in the register maintained by the Registrar

of Companies, or when such applicant seeks rectification of the existing register

of members on the basis of certain wrongful entries made therein. In other words,

Section 59 of the Companies Act, 2013 is confined exclusively to the rectification

of the register of members either by inclusion of the name of a valid and eligible

shareholder or by rectifying existing entries in the register due to alleged

anomalies that may necessitate omission or correction. This is subject to

compliance with the stipulations prescribed under sub-sections (2), (3), and (4)

of Section 59 of the Companies Act, 2013.

4. The Appellant is stated to have initiated proceedings under Section 59 of

the Companies Act, 2013 before the learned Tribunal, seeking the following

reliefs, which are extracted hereunder:-

Company Appeal (AT) (CH) No. 58/2025 Page 3 of 24

a) Direct the Respondent No. 1 herein to issue valid Share Certificates aggregating to 12.5% of the total equity shares of the Respondent No. 1 company to the Applicant.

b) To direct the Respondent No. 1 Company to rectify the register of members and enter the name of the Applicant as the member and shareholder of the Respondent No. 1Company.

c) To direct Respondent No. 2 to take action against the Respondent No. 1 Company under section 447 of the Companies Act, in furtherance of the Complaint dated 27.06.2022 lodged by the Applicant herein.

d) To pass such other order or orders as this Hon'ble Tribunal deems fit and proper in the interest of justice, equity and good conscience and in the circumstances of the case."

5. If we examine the nature of the relief that has been articulated and prayed

for by the Appellant under Section 59, it becomes evident that the Appellant, by

invoking Section 59 of the Companies Act, 2013, in fact sought a direction to

Respondent No.1, the company in which the Appellant claims to be a shareholder,

to issue a valid share certificate aggregating to 12.5% of the total equity shares of

Respondent No.1. The relief sought in the application filed under Section 59 of

the Companies Act, 2013, therefore, pertains to a direction for the issuance of a

share certificate. The pertinent question that arises is whether a judicial direction

for the issuance of a share certificate falls within the ambit of Section 59 of the

Companies Act, 2013, which deals with rectification of the register of members.

Company Appeal (AT) (CH) No. 58/2025 Page 4 of 24

6. We are of the considered view that, if the language of Section 59 of the

Companies Act, 2013 and its legislative intent are duly taken into account, the

provision is confined simpliciter to the inclusion of the name of a

shareholder/member who is already the holder of a validly issued share

certificate, based on which an application under Section 59 is preferred for

entering such name in the register of members. In other words, the first and

foremost pre-condition for invoking Section 59 of the Companies Act, 2013 is

that the Applicant must already be a valid holder of a share certificate prior to

invoking the provision. No relief in the nature of a direction compelling the

company to issue a share certificate, alleged to be held by the Applicant, can be

sought by filing an application under Section 59. A direction for issuance of a

share certificate squarely falls outside the scope and ambit of Section 59 of the

Companies Act, 2013.

7. The learned Tribunal, while dealing with the aforesaid controversy in the

context of the relief sought, took into consideration the correspondence issued by

the Appellant on 14.03.2022 to Respondent No.1, wherein a request was made

for payment of pending wages amounting to USD 160,000 and for rectification

and issuance of valid share certificates. Based on the correspondence dated

14.03.2022, the learned Tribunal recorded a finding that it was an admitted

position of the Appellant that, on the date when the application under Section 59

was filed, he did not possess a valid share certificate in his favour. According to

the Appellant's own case, the share certificate suffered from several defects for

Company Appeal (AT) (CH) No. 58/2025 Page 5 of 24 example, the issued certificate bore no number, was incomplete, and lacked

essential particulars. Once the share certificate itself was defective, no

rectification of the Register of Members could be undertaken on the basis of such

a certificate, which admittedly was not valid.

8. The learned Senior Counsel for the Respondent submitted that the

Appellant would have no legs to stand in the present proceedings owing to the

implications of the arbitration proceedings and the orders passed therein. As

recorded by the learned Tribunal in paragraph 12 of the impugned order,

Arbitration Petition No. 43/2023 had already been instituted under Sections

11(5), 11(9), and 11(12)(a) of the Arbitration and Conciliation Act, 1996 before

the Hon'ble Apex Court. In the said arbitration proceedings, the cause of action

and the relief sought were similar in nature, particularly with respect to the

issuance of a legally valid share certificate. It is noted that the Appellant filed a

memorandum dated 16.12.2024 expressing his intent to withdraw from the

ongoing arbitration proceedings, which concerned the issue of issuance of a

legally valid share certificate. The Appellant voluntarily opted out of participating

in the arbitration proceedings so as to pursue other appropriate remedies available

to him, under the perception that such course would avoid any potential conflict

between an arbitral award and the proceedings he intended to initiate, as stated in

the memorandum dated 16.12.2024.

Company Appeal (AT) (CH) No. 58/2025 Page 6 of 24

9. The learned Tribunal, while considering the rival contentions, recorded a

finding that in the absence of any valid share certificate having been issued in

favour of the Appellant by Respondent No.1, no rectification of the register could

be undertaken. This was because no privity of contract between the Applicant and

Respondent No.1 had been established by any evidence brought on record by the

Appellant.

10. The Appellant argues that in such a peculiar circumstance, where no valid

share certificate has been issued, and where the Appellant has withdrawn from

the arbitration proceedings pursuant to the memorandum filed on 16.12.2024,

thereby keeping open the liberty to pursue appropriate proceedings, the Appellant

would now be left without any remedy to seek a direction against Respondent

No.1 for issuance of a valid share certificate. This argument has been advanced

by the learned Counsel for the Appellant in the context of the bar created by

Section 430 of the Companies Act, which excludes the jurisdiction of civil courts

over matters arising under the Act. However, this argument cannot be sustained.

A direction sought by the Appellant against Respondent No.1 for issuance of a

share certificate, owing to defects in the original certificate, does not fall within

the ambit of any act or proceeding contemplated under the Companies Act.

Consequently, the bar under Section 430 of the Companies Act would not apply.

The exclusion of civil court jurisdiction extends only to matters for which the

Companies Act provides a specific remedy or mechanism.

Company Appeal (AT) (CH) No. 58/2025 Page 7 of 24

11. To reinforce her submissions, the learned Counsel for the Appellant

referred to Rule 70 of the NCLT Rules, 2016, regarding the scope and effect of

the appellate provisions under the given set of facts, and the extent of powers

vested in the Tribunal in relation to the rights claimed by the Appellant for

rectification of the register of members under Section 59 of the Companies Act,

2013. Section 469 of the Companies Act, 2013 empowers the Government of

India to frame rules through notification in the Official Gazette for carrying out

the provisions of the Act. It functions as an enabling provision intended to

facilitate implementation of actions and processes falling within the scope of the

Companies Act.

12. In light of the language used in Section 469 of the Companies Act, it

assumes the character of subordinate legislation, serving only to facilitate or

enable the effective implementation of the provisions already contained in the

Companies Act. For this purpose, Section 469(2) must be read with sub-section

(3), which prescribes the formulation of rules. It is in exercise of these powers

that the Government of India, through Gazette Notification G.S.R. 716(E) dated

21.07.2016, published the National Company Law Tribunal Rules, 2016. Among

the rules framed therein, the provision relevant for present purposes, particularly

as relied upon by the learned Counsel for the Appellant is Rule 70. Rule 70 is

extracted hereunder:-

Company Appeal (AT) (CH) No. 58/2025 Page 8 of 24

"70. Appeal under sections 58 and 59.- (1) The appeals against the refusal for registration of transfer or transmission of securities under section 58 or for rectification of register of members under section 59 shall be made to the Tribunal by way of a petition in Form No. NCLT. 1 and shall be accompanied by such documents as are mentioned in Annexure-B:

Provided that a copy of the appeal shall be served on the concerned company at its registered office immediately after filing of the petition with the Tribunal.

(2) The petitioner shall at least fourteen days before the date of hearing advertise the petition in accordance with rule 35.

(3) Where any objection of any person whose interest is likely to be affected by the proposed petition has been received by the petitioner, it shall serve a copy thereof to the Registrar on or before the date of hearing:

(4) The Tribunal may, while dealing with a petition under section 58 or 59, at its discretion, make-

(a) order or any interim order, including any orders as to injunction or stay, as it may deem fit and just;

(b) such orders as to costs as it thinks fit; and

(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.

(5) On any petition under section 59, the Tribunal may-

(a) decide any question relating to the title of any person who is a party to the petition to have his name entered in, or omitted from, the register;

(b) generally decide any question which is necessary or expedient to decide in connection with the application for rectification.

Company Appeal (AT) (CH) No. 58/2025 Page 9 of 24 (6) 9[***]"

13. Rule 70 is merely an elaboration and extension of the provisions contained

in Section 59 of the Companies Act, 2013, in the context of preferring appeals

against refusal for registration of transfer or transmission of securities. It

restrictively prescribes only the modalities and procedures under which such an

appeal may be preferred. It is not a substantive provision determining rights or

liabilities, but is purely procedural in nature.

14. In the present case, the controversy for consideration is whether the

Appellant is at all entitled to invoke Section 59 of the Companies Act for

rectification of the register of members, in light of the so-called share certificates

which the Appellant claims to hold in Respondent No.1 company. Upon perusal

of the share certificate placed on record, it cannot be said to be a validly executed

share certificate, owing to its apparent anomalies. On the basis of such a defective

document, proceedings under Section 59 of the Companies Act could not have

been initiated.

15. In this regard, the learned Counsel for the Appellant has particularly relied

upon Rule 70(5) of the NCLT Rules, 2016, contending that when a petition is

preferred under Section 59 of the Companies Act, the powers of the learned

Tribunal are sufficiently wide to include the authority to decide questions relating

to the title of any person who is a party to the petition, in order to determine

whether his name should be entered in or omitted from the register of members.

Company Appeal (AT) (CH) No. 58/2025 Page 10 of 24 The learned Counsel further argues that the Tribunal may decide any question

that is necessary or expedient for adjudicating an application for rectification.

16. However, if the scope of Rule 70(5) of the NCLT Rules, 2016 is examined

in its proper context, as already observed by this Appellate Tribunal, it constitutes

subordinate legislation aimed solely at facilitating effective implementation of

the provisions contained in Section 59 of the Companies Act. The scope provided

under sub-rule (5) is limited to deciding questions of title of any person who is a

party to the petition. Rule 70(5) of the NCLT Rules, 2016 therefore cannot come

to the aid of the Appellant, in view of the inherent restrictions imposed by Section

59 of the Companies Act itself, which governs the principal substantive

provisions relating to the rectification of the register of members.

17. Section 59 already extracted above prescribes a restrictive operation over

certain areas of applicability as contained particularly under sub-section (1),

which may be understood as follows, it provides for rectification in following

cases:

i. If the name of any person is, without sufficient cause, entered in the

register of members.

ii. After having been entered, is omitted without any sufficient cause.

iii. Or if a default is made or unnecessary delay takes place in entering

a name in the register.

Company Appeal (AT) (CH) No. 58/2025 Page 11 of 24 18. These are the three sets of circumstances, under, which an application

under Section 59 of the Companies Act, could have been entertained for the

purposes of rectification in the register of members. The question is as to what

would be the foundation for the purposes of invocation of Section 59 of the

Companies Act, for rectification in the register. For the aforesaid purpose, we will

have to deal with as to what the literal connotation is, with regard to the word

"rectification" used by the legislature. Word 'rectification' has been defined in

dictionary in the following manner: -

"Sth (formal) to put right Sth that is wrong Correct: to rectify a fault. We must take steps to rectify the situation. The damage will be easily rectifiable".

The word "rectification," in its literal sense, means "to put right what is wrong"

or "to rectify a fault," which implies carrying out a correction that should

otherwise have been appropriately and legally incorporated, or that deserves to

be changed based on particular legally acceptable circumstances. It is an admitted

position in the present case that the Appellant is not a holder of a validly issued

share certificate. According to the Appellant himself, the document is incomplete

and has not been validly executed. Therefore, the question that arises is whether,

on the basis of such a share certificate one that has not been validly executed and

does not even bear a number Section 59 of the Companies Act can at all be

invoked for the purpose of rectification of the register of members.

Company Appeal (AT) (CH) No. 58/2025 Page 12 of 24 As we have already observed, the invocation of Section 59 of the Companies Act

involves a two-stage process for an applicant seeking rectification or correction

of the register.

(i) That he should have a valid foundation of holding of a legally

executed share certificate to maintain an application under Section

59 of the Companies Act.

(ii) It is only when this aspect of having held a valid certificate is

established in the eyes of law, then only the person concerned who

holds a validly executed share certificate gets a right to sustain the

proceedings under Section 59 of the Companies Act.

19. Admittedly, in the present case, the proceedings before the Arbitrator,

initiated pursuant to the arbitration clause, involved consideration of an identical

issue namely, a request for a direction against Respondent No. 1 to issue a valid

share certificate so as to overcome the deficiencies in the defective share

certificate purportedly held by the Appellant. However, for reasons best known

to the Appellant, he himself withdrew from the arbitration proceedings and

instead chose to initiate proceedings under the Companies Act, 2013 before the

Ld. NCLT.

20. We are of the view that, in the absence of a valid share certificate having

been issued in favour of the Appellant and particularly when the Appellant

himself contends otherwise the question of validity of the share certificate cannot

Company Appeal (AT) (CH) No. 58/2025 Page 13 of 24 be scrutinised by the Ld. Tribunal under Rule 70(5) of the NCLT Rules, 2016.

Consequently, the withdrawal from the arbitration proceedings has an adverse

impact on the maintainability of proceedings under Section 59 of the Companies

Act. Furthermore, since the Ld. Tribunal could not exercise its jurisdiction under

Rule 70(5) of the NCLT Rules, 2016, the entitlement to title over the shares based

on such a certificate cannot be decided by the Tribunal. Hence, the argument

advanced by the Ld. Counsel for the Appellant is not acceptable to this Appellate

Tribunal. Moreover, a relief in the nature of a direction to issue a valid share

certificate would fall outside the scope of Section 59 of the Companies Act, 2013.

21. We find merit in the submission of the Ld. Counsel for the Respondent that

the argument advanced by the Ld. Counsel for the Appellant may not be

sustainable. This is because, in order to attach validity to the share certificate

allegedly issued to the Appellant, the Appellant would be required to establish

compliance with the procedure contemplated under the Companies (Share Capital

and Debentures) Rules, 2014. The Respondent contends that the powers and

parameters governing the issuance of sweat equity shares are provided under Rule

8 of the Companies (Share Capital and Debentures) Rules, 2014, and that certain

mandatory covenants must be fulfilled before any validity can be attached to a

share certificate issued in favour of a person claiming to be a lawful holder of a

sweat equity share certificate. He further submits that when Rule 8(1) and Rule

8(2) of the 2014 Rules are read together, they prescribe various procedural

requirements, from Clause (a) to Clause (m), which must be satisfied in order to

Company Appeal (AT) (CH) No. 58/2025 Page 14 of 24 hold that a share certificate has been validly issued. For this purpose, there must

be an authorisation by way of a special resolution passed in the general meeting

of the company approving the issuance of sweat equity shares, along with the

other stipulations contained in Rule 8(2) of the 2014 Rules. The relevant

conditions required to be satisfied under the Rules are extracted hereunder:-

8. Issue of sweat equity shares.-

(1) A company other than a listed company, which is not required to comply with the Securities and Exchange Board of India Regulations on sweat equity, shall not issue sweat equity shares to its directors or employees at a discount or for consideration other than cash, for their providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called, unless the issue is authorised by a special resolution passed by the company in general meeting.

Explanation.--For the purposes of this rule--

(i) the expressions "Employee" means--

(a) a permanent employee of the company who has been working in India or outside India, for at least last one year; or

(b) a director of the company, whether a whole time director or not; or

(c) an employee or a director as defined in sub-clause (a) or

(b) above of a subsidiary, in

(d) India or outside India, or of a holding company of the company;

(ii) the expression 'Value additions' means actual or anticipated economic benefits derived or to be derived by the company from an expert or a professional for providing knowhow or making available rights in the nature of

Company Appeal (AT) (CH) No. 58/2025 Page 15 of 24 intellectual property rights, by such person to whom sweat equity is being issued for which the consideration is not paid or included in the normal remuneration payable under the contract of employment, in the case of an employee. (2) The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 shall contain the following particulars, namely:-

(a) the date of the Board meeting at which the proposal for issue of sweat equity shares was approved;

(b) the reasons or justification for the issue;

(c) the class of shares under which sweat equity shares are intended to be issued;

(d) the total number of shares to be issued as sweat equity;

(e) the class or classes of directors or employees to whom such equity shares are to be issued;

(f) the principal terms and conditions on which sweat equity shares are to be issued, including basis of valuation ;

(g) the time period of association of such person with the company;

(h) the names of the directors or employees to whom the sweat equity shares will be issued and their relationship with the promoter or/and Key Managerial Personnel;

(i) the price at which the sweat equity shares are proposed to be issued;

(j) the consideration including consideration other than cash, if any to be received for the sweat equity;

(k) the ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity and how it is proposed to be dealt with;

(l) a statement to the effect that the company shall conform to the applicable accounting standards; and

(m) diluted Earning Per Share pursuant to the issue of sweat equity shares, calculated in accordance with the applicable accounting standards.

Company Appeal (AT) (CH) No. 58/2025 Page 16 of 24 We so no reasons to differ to accept the arguments of Respondent counsels, and

the findings recorded in relation thereto in the impugned order.

22. It is evident that the share certificate on the basis of which the Appellant

has raised his claim for invocation of Section 59 of the Companies Act does not

satisfy any of the conditions prescribed under Sub-Rule (2), despite the

Appellant's attempt to establish compliance. Consequently, the implications

contained in Rule 8 of the 2014 Rules become operative, which provide that

unless and until a special resolution authorizing the issue of sweat equity shares

has been duly passed, the allotment cannot be treated as valid. We are further of

the view that the conditions set forth under Rule 8(3) of the 2014 Rules also

reinforce the finding that the mandatory requirements for issuance of sweat equity

shares have not been fulfilled. In light of this, the Appellant, who does not possess

a valid share certificate, is not competent to initiate proceedings under Section 59

of the Companies Act for rectification of the register of members.

23. The possibility of rectifying share certificates or any shortcomings that

may arise in the issuance of a valid share certificate was earlier made rectifiable

in light of the provisions contained in Section 113 of the Companies Act, 1956,

which dealt with the limitation of time for issuance of a valid share certificate,

particularly the conditions set out under Section 113(3) of the Companies Act,

1956. The said provision is extracted hereunder: -

Company Appeal (AT) (CH) No. 58/2025 Page 17 of 24

"113. Limitation of time for issue of certificates.--

1 [Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, deliver, in accordance with the procedure laid down in Section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred:

Provided that the2 [Central Government] may, on an application being made to it in this behalf by the company, extend any of the periods within which the certificates of all debentures and debenture stocks allotted or transferred shall be delivered under this sub-section, to a further period not exceeding nine months, if it is satisfied that it is not possible for the company to deliver such certificates within the said periods.] The expression "transfer", for the purposes of this sub- section, means a transfer duly stamped and otherwise valid, and does not include any transfer which the company is for any reason entitled to refuse to register and does not register. (2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to3 [five thousand] rupees for every day during which the default continues.

(3) If any company on which a notice has been served requiring it to make good any default in complying with the provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the4 [Central Government] may, on the application of the person entitled to have the certificates or the debentures delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the order; and any such order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default.

Company Appeal (AT) (CH) No. 58/2025 Page 18 of 24 5 [(4) Notwithstanding anything contained in sub-section (1), where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.]"

24. Since under the old Act, the right to seek rectification of a defective share

certificate was statutorily preserved under Section 113, the Appellant could have

relied on that provision earlier. However, with the repeal of the Companies Act,

1956, and by virtue of Section 465 of the Companies Act, 2013, Section 113 of

the 1956 Act has neither been saved nor has any corresponding provision been

incorporated in the Companies Act, 2013. As a result, the rectification of

defective share certificates cannot be brought within the ambit of proceedings

under Section 59 of the Companies Act, 2013, particularly in view of the limited

grounds and specific circumstances under which Section 59 can be invoked. Even

otherwise, by necessary implication, the legislature, under the 2013 Act, has taken

away the statutory provision for rectification or correction of defective share

certificates. Thus, no such provision exists under the Companies Act, 2013.

25. In fact, we are of the view that the Ld. Tribunal had correctly formed the

opinion that the nature of the controversy, particularly in the context of the relief

sought in the application preferred under Section 59 of the Companies Act, did

not fall within the domain of Section 59, as the Appellant was essentially seeking

a direction for issuance of a valid share certificate. The Ld. Tribunal observed

that, while exercising its rectificatory jurisdiction, if any seriously disputed

questions of fact arise, the Tribunal should relegate the parties to the civil court,

Company Appeal (AT) (CH) No. 58/2025 Page 19 of 24 which would be the more appropriate forum to investigate and adjudicate such

disputes. In such a situation, the bar contained under Section 430 of the

Companies Act would not come into play, considering that the nature of the relief

sought falls outside the sphere of matters covered under the Companies Act.

26. The Tribunal has rightly concluded, while interpreting the implications of

Clause 4(a) of the Employees Agreement, that under the employment agreement

between the Applicant and the Respondent company, the parties had agreed that

the employee would be paid a certain amount on a monthly basis. The employer

had further agreed, under those terms, to issue to the employee sweat equity

shares up to 12.50% of the total paid-up equity share capital of the company upon

completion of six months of service a fact which was shown to have occurred.

27. The observations made by the Ld. Tribunal indicate that, in view of the

email communication dated 26.08.2021 relied upon by the Appellant, which was

sent to the Chairman of Respondent No. 1 regarding the confirmation of 14,150

equity shares of ₹10 each claimed to have been transferred in favour of the

Applicant, the Applicant admitted in that communication that the shares were

defective. However, there is nothing on record to establish that, at any point in

time, the Appellant took any steps to ensure the issuance of a valid share

certificate in its favour.

28. In that eventuality, when the employment agreement was never acted upon

and the Applicant never rendered any services to the 1st Respondent company,

Company Appeal (AT) (CH) No. 58/2025 Page 20 of 24 the basis for issuing the alleged sweat equity shares does not stand established.

The Applicant has not placed on record any salary slips or joining letter to show

that the employment agreement was ever acted upon, on the basis of which the

sweat equity shares could have been issued in the name of the Appellant and

recorded in the register of members in accordance with Section 59 of the

Companies Act, 2013.

29. The Ld. Tribunal rightly concluded that the controversy raised does not fall

within the domain of Section 59 of the Companies Act, 2013, because it involved

the non-issuance of a valid share certificate and not the rectification of the register

of members. This was due to the fact that no privity of contract, as employer and

employee, between the Applicant and Respondent No. 1 was ever established.

Hence, for these reasons, the company appeal lacks merit and deserves to be

dismissed on the following grounds:

(i) The Applicant himself had filed an Arbitration Petition No. 43 of

2023 before the Hon'ble Apex Court, under Section 11 (5), 11 (9),

11 (2)(a), for appointment of the sole Arbitrator for the purposes of

adjudicating the dispute arising out of the employment agreement.

But the Applicant himself had opted out to withdraw the same, by

filing a memo to the said effect on 16.12.2024 in order to enable the

Applicant to file a proceeding under Section 59 of the Companies

Act, 2013.

Company Appeal (AT) (CH) No. 58/2025 Page 21 of 24

(ii) The so-called alleged employment agreement was never executed,

as the same is evident from the absence of there being any evidence

being placed on record by the Appellant of having to show that he

had, rendered any services in the Respondent company by producing

the joining certificate or the pay slips, which could have entitled the

Appellant to draw the benefit of the employment agreement, and the

consequential issuance of sweat share certificate.

(iii) The power of rectification of register of members, as conferred under

Section 59 of the Companies Act, 2013. In fact, those are summary

proceedings, which enable the rectification of the register of

members. There cannot be an elaborative procedure which could

even include the ambit to decide the entitlement of holding of the

valid shares or to decide the issue of passing any directions as such

for the issuance of a valid share certificate.

(iv) Since the nature of controversy raised by the Appellant, will not fall

within the ambit of Section 59 of the Companies Act, seeking a

directions for issuance of a valid sweat share certificates, the

application preferred under Section 59 of the Companies Act, by the

Appellant, was rightly rejected, by the Ld. Tribunal.

(v) Since the very basis of the application preferred by the

Appellant/Applicant, under Section 59 of the Companies Act, is on

the basis of a non-existing ground, which admittedly is portrayed

Company Appeal (AT) (CH) No. 58/2025 Page 22 of 24 because of the non-issuance of a valid sweat share certificate.

Section 59 of the Companies Act, would not lie, and would not be

maintainable.

(vi) Even according to the documents which had been on record and the

pleadings as raised by the Appellant, the so-called share certificate,

which apparently and admittedly too, has not been validly issued, is

not in consonance to the provisions contained under Rule 8 of the

Rules of 2014.

(vii) In the absence of there being a prior validly issued share certificate,

having being held by the Appellant, satisfying the conditions of Rule

8 of the Rules of 2014, there cannot be any proceeding under Section

59 of the Companies Act, 2013.

30. From the arguments advanced by the Ld. Counsels for the parties, it is

evident that Section 59 of the Companies Act is exclusively limited to the

rectification of the register of members. In the present case, however, the relief

sought pertains to a direction for issuance of a valid share certificate, which does

not fall within the scope of Section 59 of the Companies Act. There is no anomaly

in the findings recorded by the Ld. Tribunal. Since there is no privity of contract

as employer and employee between the Applicant and Respondent No. 1, and as

the matter involves complex questions of fact requiring scrutiny of evidence

before arriving at a conclusion, a proceeding under Section 59, which is summary

in nature, cannot be invoked. Hence, the rejection of the application by the

Company Appeal (AT) (CH) No. 58/2025 Page 23 of 24 impugned order dated 07.03.2025, holding the proceeding under Section 59 of

the Companies Act to be not maintainable, does not suffer from any apparent

error warranting interference. Accordingly, the company appeal lacks merit and

is hereby dismissed.

Any interlocutory applications stand closed.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Jatindranath Swain] Member (Technical)

23/12/2025 SN/MS/AK

Company Appeal (AT) (CH) No. 58/2025 Page 24 of 24