On 23 December 2025, the NCLAT delivered a Judgement on the issue involving Section 59 of the Companies Act, 2013 (‘Act’) upholding the Order passed by the NCLT, Hyderabad.
Briefly, facts of the matter are that there was an unexecuted employment agreement between the Appellant, Mohan Ram Prasad Devineni with the Respondent Company, Biochemicals & Synthetic Products Private Limited. Pursuant to the said agreement the Petitioner was to develop/ expand the business of the Respondent in the US for a monthly salary of US $ 10,000 and 12.5% shares in the share capital in the form of sweat equity.
It appears that the Petitioner was not paid any salary and a defective share certificate was issued without having some essential details such as distinctive number, CIN, without any signatures, etc. The Company had also not passed any resolutions by board or shareholders, authorizing such an issue.
In view of these facts, NCLAT upheld the decision of the NCLT which had denied the rectification of register of members under Section 59 of the Act.
It is important to note the following ratios from the NCLAT judgement:
1. First and foremost pre-condition for invoking Section 59 of the Act is that the Applicant must already be a valid holder of a share certificate prior to invoking the provision;
2. No relief directing release of share certificate can be granted;
3. Once the share certificate itself was defective, no rectification of the Register of Members could be undertaken on the basis of such a certificate;
4. The exclusion of civil court jurisdiction under Section 430 of the Act extends only to matters for which the Companies Act provides for a specific remedy or mechanism;
5. Rule 70(5) of the NCLT Rules allows the Tribunal to decide any question relating to the title of any person. However, this Rule only prescribes modalities and is not a substantive provision determining the rights or liabilities;
6. Section 59 involves a two-stage process. First, there should be a valid foundation of holding of a legally executed share certificate then he gets a right to sustain proceedings under Section 59;
7. A validly issued share certificate would require compliance with the Companies (Share Capital and Debenture) Rules, 2014;
8. Right to seek rectification of a defective certificate was statutorily preserved under Section 113 of the 1956 Act but not under 2013 Act;
9. The power of rectification is summary in nature and if any seriously disputed questions arise, NCLT should relegate the parties to a forum which is more appropriate for investigation and adjudication of such disputed questions.
The judgment reiterates that Section 59 is not a mechanism to confer or create shareholding, but merely a corrective provision available to an already valid shareholder. These principles must be carefully borne in mind while advising or initiating proceedings for rectification of the register of members.
[The author is an Executive Partner in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, Hyderabad]
