Civil court jurisdiction and Section 314 increments: shareholder suit maintainable, and pay increments in continuous service were not a subsequent appointment.

The Companies Act, 1956 did not oust civil court jurisdiction merely because a shareholder sued in a representative capacity over company affairs; where the complaint alleged an ultra vires act or a wrong affecting the company, the suit remained maintainable, and the remedies under Sections 397 and 398 did not create a complete bar. The court also construed the Explanation to Section 314(1) as applying to a fresh or renewed appointment on higher remuneration, not to increments granted during continuous service of a permanent incumbent. On that basis, the increments were not treated as a subsequent appointment and no breach of Section 314(1) was found.

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Issues: (i) Whether the civil court had jurisdiction to entertain the shareholders' suit and whether the suit was maintainable in view of the Companies Act, 1956 and the Specific Relief Act, 1963; (ii) Whether increments granted to a permanent incumbent, who was the relative of a director, amounted to a "subsequent appointment" within the meaning of the Explanation to Section 314(1) of the Companies Act, 1956.

Issue (i): Whether the civil court had jurisdiction to entertain the shareholders' suit and whether the suit was maintainable in view of the Companies Act, 1956 and the Specific Relief Act, 1963.

Analysis: The rule against judicial interference in the internal management of a company does not apply where the complaint is of an act that is ultra vires or otherwise beyond the power of the company or its majority. A shareholder may sue in a representative capacity where the wrong complained of affects the company and cannot be validly ratified by ordinary majority action. The provisions of Sections 2(11), 10, 397, 398 and 399 of the Companies Act, 1956 do not, either expressly or by necessary implication, exclude the civil court's jurisdiction in every case relating to company affairs. The remedy under Sections 397 and 398 is discretionary and available only to members qualifying under Section 399, and that does not justify a total ouster of civil jurisdiction for others. The declaratory relief claimed also did not fall outside the scope of civil court jurisdiction merely because it was framed as a shareholder action for the company's benefit.

Conclusion: The civil court had jurisdiction and the suit was maintainable.

Issue (ii): Whether increments granted to a permanent incumbent, who was the relative of a director, amounted to a "subsequent appointment" within the meaning of the Explanation to Section 314(1) of the Companies Act, 1956.

Analysis: Section 314(1) and its Explanation require prior special resolution for an initial appointment and for a subsequent appointment on higher remuneration not covered by the original approval. The expression "subsequent appointment" was construed as connoting a fresh appointment or re-appointment after a break in continuity, not a mere increment in pay of a permanent incumbent. A time-scale increase or other increment granted in the course of continued service was held not to be the same thing as a subsequent appointment.

Conclusion: The increments did not amount to subsequent appointments and there was no violation of Section 314(1).

Final Conclusion: The appeal succeeded on the merits, the decree of the appellate court was set aside, and the dismissal of the suit by the trial court was restored.

Ratio Decidendi: The Explanation to Section 314(1) applies to a fresh or renewed appointment on higher remuneration and does not extend to increments granted to a permanent incumbent in continuous service; and the Companies Act, 1956 does not oust civil court jurisdiction absent express words or necessary implication.

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