Companies Act Section 59

Rectification of Register of Members under the Companies Act: Section 59

1. Introduction to Rectification of the Register of Members

The register of members is an official document that reflects the names of individuals who hold shares in a company. 

Maintaining an accurate register is essential for both legal compliance and transparency in a company’s governance. 

Any entry of a person’s name without cause, omission of a legitimate member’s name, or undue delay in updating changes can lead to legal issues and misunderstandings. 

Section 59 of the Companies Act, therefore, provides a structured process to ensure the register of members is accurately updated and offers a means for rectification if errors are identified.

2. Grounds for Seeking Rectification of the Register of Members

Under Section 59, several scenarios necessitate rectification of the register of members:

Erroneous Entry of a Name: If a person’s name is entered in the register without any legitimate reason or “without sufficient cause.”

Omission of a Name: If, after being entered in the register, a person’s name is removed without sufficient justification.

Delays and Defaults: If a delay occurs or if the company fails to update the register to show that a person has become or ceased to be a member.

In any of these situations, the affected person, another member, or the company itself may file for rectification.

3. Procedure for Filing an Appeal for Rectification

When an error, omission, or delay occurs, an appeal can be made to:

The Tribunal (National Company Law Tribunal or NCLT): 

This is the primary forum within India authorized to address rectification disputes.

Competent Court Outside India: 

If the issue involves a foreign member or debenture holder residing outside India, an appeal can be made to a foreign court, provided it is specified by the Central Government in a notification.

The Act provides this flexibility to ensure that international stakeholders have a legitimate pathway to address their grievances, thus promoting confidence and transparency in cross-border transactions.

4. Powers of the Tribunal in Rectification of the Register

The Tribunal plays a pivotal role in ensuring that errors or discrepancies in the register of members are promptly corrected. Upon hearing the appeal, the Tribunal has the authority to:

Dismiss the Appeal: 

If the Tribunal finds that the appeal lacks merit, it may dismiss the case without any rectification order.

Order Registration of Transfer or Transmission: 

If a company has refused or failed to register a transfer or transmission of shares, the Tribunal may direct the company to complete this registration process within ten days of receiving the order.

Rectify the Register or Depository Records: 

In cases where there is an error or omission, the Tribunal can order a rectification of the records held by the depository or the company’s register.

Award Damages: 

If the aggrieved party has experienced any financial loss due to the discrepancy, the Tribunal can order the company to compensate the affected party.

These powers ensure that the Tribunal’s orders not only address the specific error but also restore the affected party’s rights and compensate for any damages suffered.

5. Right of Securities Holders to Transfer and Voting Rights

Section 59 explicitly safeguards the rights of shareholders by affirming:

Freedom to Transfer Securities: 

The rectification process does not impede the basic right of shareholders to transfer their securities.

Voting Rights for New Holders: 

Any individual who acquires shares or other securities holds the right to vote on matters unless the Tribunal specifically suspends these rights.

This protection ensures that the free transferability of shares is maintained, a crucial aspect for any company and its investors.

6. Addressing Violations of Securities Laws

Section 59 also includes provisions for cases where the transfer of securities contravenes other applicable securities laws. Some of these laws include:

Securities Contracts (Regulation) Act, 1956

Securities and Exchange Board of India Act, 1992

Any other provisions of the Companies Act or relevant legal requirements

If a transfer is found to be in violation of any such law, the Tribunal has the authority to direct the responsible company or depository to correct the contravention and rectify the register. This process can be initiated by:

The depository

The company

The holder of securities

The depository participant

The Securities and Exchange Board of India (SEBI)

This allows for appropriate intervention in cases where legal provisions have been breached, protecting both the company and its shareholders.