Supreme Court Orders Reconsideration of Shareholding Dispute in Lexus Technologies Pvt. Ltd.

The case of Chalasani Udaya Shankar & Ors. vs. M/s. Lexus Technologies Pvt. Ltd. & Ors. is a significant ruling by the Supreme Court on the rectification of the Register of Members, corporate fraud, and allegations of oppression and mismanagement in private limited companies. The Supreme Court overturned the judgments of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), ordering a fresh examination of the evidence to determine the rightful shareholders of M/s. Lexus Technologies Pvt. Ltd.

Background of the Case

The appellants—Chalasani Udaya Shankar, Sripathi Sreevana Reddy, and Yalamanchilli Manjusha—filed a petition before the NCLT, Hyderabad/Amaravati Bench, under Sections 59 and 88 of the Companies Act, 2013. They sought rectification of the Register of Members of M/s. Lexus Technologies Pvt. Ltd., Vijayawada, Andhra Pradesh, to reflect their alleged acquisition of shares. They also sought action against the respondents for oppression, mismanagement, and fraud under Sections 447 and 448 of the Companies Act, 2013.

Key developments in the case:

2004: Mantena Narasa Raju acquired 94.8% of the equity share capital of M/s. Lexus Technologies Pvt. Ltd.
April 18, 2015: The appellants allegedly purchased 10,51,933 equity shares from Mantena Narasa Raju via Securities Transfer Deeds (Form No. SH-4).
2017: The Registrar of Companies struck off the company’s name due to non-filing of annual returns.
2018: The appellants discovered that their names had been removed from company records and that financial statements for 2014-2017 had been filed with false information.
2019-2021: The NCLT dismissed the case, citing disputed ownership and lack of evidence.
2023: The NCLAT upheld the NCLT’s decision, leading to the Supreme Court appeal.
September 9, 2024: The Supreme Court ruled in favor of the appellants and ordered a fresh review.

Legal Arguments

Arguments by the Appellants (Chalasani Udaya Shankar & Ors.)

The appellants claimed they had lawfully acquired 10,51,933 shares in 2015 and had paid Rs. 14.67 crore to the seller.
Their share certificates were duly signed and authenticated by the company directors.
They discovered fraud only after accessing the MCA portal, where their names had been erased from the company records.
The respondents had manipulated records and filed false financial statements to remove them as shareholders.

Arguments by the Respondents (M/s. Lexus Technologies Pvt. Ltd. & Ors.)

The respondents denied the share transfer and claimed the appellants had no locus standi.
They alleged the signatures on the share certificates were forged and that the transactions were fabricated.
The case was barred by limitation as the share acquisition allegedly took place in 2015, while the petition was filed in 2018.
The NCLT had no jurisdiction to adjudicate fraud allegations, which should be tried in a civil court.

Supreme Court’s Observations

1. Rectification of the Register of Members

The Court noted that Section 59 of the Companies Act, 2013, allows for rectification when errors in the Register of Members are caused by fraud or misrepresentation.

“The appellants have presented sufficient material to warrant a detailed examination of whether their names were wrongfully removed from the Register of Members.”

2. Disputed Ownership and Fraud Allegations

The Court found that both parties presented conflicting evidence and that the NCLT and NCLAT failed to conduct a thorough inquiry.

“Neither the NCLT nor the NCLAT adequately verified whether the share transfer documents and financial statements were manipulated.”

3. Limitation and Jurisdiction

The Court held that limitation was a mixed question of law and fact that required further scrutiny.

“The NCLT’s summary dismissal of the limitation argument was improper, given that the appellants only discovered the alleged fraud in 2018.”

4. Improper Dismissal of Evidence

The Court criticized the NCLT and NCLAT for disregarding critical evidence, including the share transfer deeds and payment transactions.

“Failure to scrutinize original share certificates and financial records before dismissing the case was a significant oversight.”

Final Verdict

The Supreme Court issued the following directives:

The judgments of the NCLT and NCLAT were set aside.
The case was remanded to the NCLT for reconsideration with a directive to examine all available evidence.
The NCLT was instructed to prioritize the case and dispose of it expeditiously.
Pending applications in the case were disposed of.

This ruling underscores the need for meticulous examination of corporate records in disputes involving allegations of fraud and wrongful removal from shareholding registers.

Petitioner Name: Chalasani Udaya Shankar & Ors..
Respondent Name: M/s. Lexus Technologies Pvt. Ltd. & Ors..
Judgment By: Justice Sanjay Kumar.
Place Of Incident: Vijayawada, Andhra Pradesh.
Judgment Date: 09-09-2024.

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