In a significant ruling, the Supreme Court of India has ordered a fresh inquiry into the alleged share transfer dispute involving M/s Lexus Technologies Pvt. Ltd., questioning the manner in which the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) handled evidence in the case. The bench, comprising Justice Sanjiv Khanna and Justice Sanjay Kumar, set aside the judgments of both the NCLT and NCLAT, citing a failure to adequately examine the evidence and key issues raised by the parties.
Background of the Case
The case originated from a petition filed by Chalasani Udaya Shankar, Sripathi Sreevana Reddy, and Yalamanchilli Manjusha (the appellants) against M/s Lexus Technologies Pvt. Ltd., Vijayawada, and others, including Mantena Narasa Raju, Appa Rao Mukkamala, and Suresh Anne (respondent nos. 2, 3, and 4), alleging oppression, mismanagement, and fraudulent activities under Sections 59 and 241 of the Companies Act, 2013.
The appellants had acquired 10,51,933 equity shares of Lexus Technologies from Mantena Narasa Raju, who was a majority shareholder, through Securities Transfer Deeds in Form No. SH-4. However, they later alleged that their shareholding was erased from the company’s records by the respondents, prompting them to seek rectification of the Register of Members and initiate action against the alleged perpetrators.
Key Legal Issues Involved
1. Rectification of the Register of Members: The appellants sought to have their names reinstated in the Register of Members of Lexus Technologies under Section 59 of the Companies Act, 2013.
2. Allegations of Oppression and Mismanagement: The appellants alleged that the respondents engaged in acts of oppression with the intent to take control of the company’s assets.
3. Jurisdictional Challenges: The respondents contended that the NCLT did not have jurisdiction to adjudicate claims involving allegations of fraud, suggesting that such matters should be dealt with by a civil court.
4. Issue of Limitation: The NCLT initially noted that the issue of limitation, being a mixed question of fact and law, needed full examination. However, this was later dismissed in a summary manner by the Acting President of the NCLT.
Court’s Observations and Decision
In its judgment, the Supreme Court criticized both the NCLT and NCLAT for their handling of the evidence and the legal issues involved. Justice Sanjay Kumar, writing for the bench, noted several key shortcomings:
1. Failure to Examine Evidence: The Supreme Court observed that the Acting President of the NCLT dismissed the appellants’ petition without adequately considering the material evidence, such as share transfer forms, share certificates, and related emails. The judgment highlighted that the NCLT failed to verify the authenticity of these documents or call upon the parties to produce further evidence.
2. Lack of Proper Inquiry: The court criticized the Acting President of the NCLT for ignoring a prior interim order that had clearly indicated the issues that needed to be investigated. The Supreme Court remarked that the final order passed by the Acting President lacked reference to the substantial material and questions raised during the interim proceedings.
3. Improper Handling of Fraud Allegations: The court also took issue with the NCLAT’s approach, which had accepted the respondents’ narrative regarding a third-party involvement in the financial transactions without proper scrutiny. The Supreme Court pointed out that the NCLAT incorrectly concluded that the money was not transferred by the appellants, based on a flawed reading of the facts.
4. Misapplication of Law on Limitation: The Supreme Court noted that the issue of limitation was dismissed by the NCLT without a detailed examination, contrary to its earlier interim observation that such an issue was a mixed question of law and fact that required further inquiry.
Important Quotes from the Judgment
The bench highlighted several crucial lapses in the decision-making of both the NCLT and NCLAT. Justice Sanjay Kumar stated, “Proper verification of the assertions made by the parties was a sine qua non. The Acting President of the NCLT, by failing to carry out the said exercise, failed to discharge the mandate of law.”
The judgment also remarked, “Neither the Acting President of the NCLT nor the NCLAT examined, with any seriousness, the issues raised before them to come to a cogent conclusion as to whether the disputes raised by the respondents were mere moonshine.”
Parties and Counsel Involved
– Appellants: Chalasani Udaya Shankar, Sripathi Sreevana Reddy, and Yalamanchilli Manjusha.
– Respondents: M/s Lexus Technologies Pvt. Ltd., Mantena Narasa Raju, Appa Rao Mukkamala, Suresh Anne, and others.
– Appellants’ Counsel: Senior Advocate Mr. Fali S. Nariman, with Advocates Mr. Siddharth Bhatnagar and Ms. Rekha Pandey.
– Respondents’ Counsel: Senior Advocate Mr. Mukul Rohatgi, with Advocates Mr. Ramesh Kumar and Ms. Shruti Mahajan.
