2019 (12) TMI 567 - HC - Companies Law

Court dismisses appeal, vacates interim order, directs NCLT jurisdiction for company law matters

Vikram Jairath Versus Middleton Hotels (P.) Ltd.

The court dismissed the appeal and applications, vacating the interim order. It held that the National Company Law Tribunal (NCLT) was the proper forum to ... Oppression and mismanagement - Jurisdiction to entertain a suit - Rejection of prayer for an ad-interim order of injunction - rejection on the ground of suppression of material facts and also on the ground that this issue would require adjudication on the identical core issue - registration of transfer of shares - bar under section 430 of the Companies Act, 2013 - HELD THAT:- From the facts pleaded in paragraphs 11 to 15 of the plaint and the recourse available under sections 58(1) and 59(2) of the Act, it is clear that the application for non-registration of the shares of the appellant had to be made before the Tribunal under section 59(1) of the Act as this was something that the NCLT was expressly 'empowered to determine' - Once the tribunal receives the application under section 59(1) of the Act, it is empowered, under section 59(2) of the Act extracted herein above, to either dismiss the appeal or 'direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order'. If the appellant succeeds in this application, the natural corollary would be that it would then be deemed to be a 'member' within the meaning of section 2(55) of the 2013 Act. In that eventuality, the other reliefs that it is seeking, under sections 241 and 242 of the 2013 Act, could then be granted. Therefore, there would be no bar on a combined application being filed, as is the prevailing norm. The equitable right of the transferee gets metamorphosed into the absolute right of a shareholder only when the names of the transferees after the recognition of the transfer, are entered on the register. This can be viewed from another angle and it is this: when once the transferee does everything that he is required to do under law, to get his name entered on the register by proper lodgement of the instruments of transfer and no other obstacles remain in enforcement of the said right, the transfer becomes effective as against the company also. Thereafter, the company cannot unilaterally alter its articles affecting the aforesaid right of the transferee. In the present case, the reliefs claimed are being sought directly against the company/respondent no. 1 - for the transferee to have maintained an action against the company for oppression and mismanagement, the reliefs would have had to be couched in terms through the transferor. However, even then, for the reasons indicated in the preceding paragraph, the proper forum to grant those reliefs would be the NCLT. This is another reason, in addition to the reason given in the paragraph above, for the suit to not be maintainable. No reliefs as prayed for by the appellant can be granted at this stage since the court is of the prima facie view that if does not have the jurisdiction to try, receive and entertain the suit - In view of my prima facie finding that this court does not have the jurisdiction to grant any of the reliefs prayed for in the plaint and having regard to the fact that all the reliefs claimed in the plaint could be claimed before the NCLT in the pending proceeding and in fact if the prayer made before the NLCT is allowed it could have the same effect or consequence or bearing, I am not inclined to pass any interim order at this stage. The matter in issue in the suit can be more appropriately and effectively decided and adjudicated by the NCLT. The appeal and the applications are dismissed - the interim order passed by the order dated 14th June 2019 and extended by the orders subsequently passed stand vacated. Issues Involved:1. Suppression of Material Facts.2. Simultaneous Reliefs in Civil Court and NCLT.3. Jurisdiction under Section 430 of the Companies Act 2013.4. Beneficial Ownership and Trust Relationship.5. Interim Reliefs and Injunctions.Issue-wise Detailed Analysis:1. Suppression of Material Facts:The learned Single Judge rejected the appellant's prayer for an ad-interim order of injunction on the ground of 'suppression of material facts.' The appellants had not disclosed that they were seeking similar reliefs before both the High Court and the National Company Law Tribunal (NCLT).2. Simultaneous Reliefs in Civil Court and NCLT:The court found that the appellants had filed a petition before the NCLT seeking similar reliefs as those prayed for in the suit. The reliefs claimed in both forums overlapped, and the court held that a litigant cannot seek similar reliefs in different forums simultaneously. The appellants' cause of action in the civil suit was different from that in the NCLT application, but the reliefs sought were essentially the same.3. Jurisdiction under Section 430 of the Companies Act 2013:Section 430 bars civil courts from entertaining any suit or proceeding in respect of matters which the NCLT or the Appellate Tribunal is empowered to determine. The court analyzed the scope of Section 430 and concluded that the issues raised in the suit, such as the refusal to register the transfer of shares and the alleged fraudulent acts, fell within the jurisdiction of the NCLT. The NCLT has the power to decide on the rectification of the register of members and related issues under Sections 58 and 59 of the Companies Act 2013.4. Beneficial Ownership and Trust Relationship:The appellants argued that they had become beneficial owners of the shares and that the respondents were holding the shares in trust for them. The court acknowledged the relationship of trustee and cestui que trust but noted that the proper forum to adjudicate such issues was the NCLT. The court referred to precedents like Mathalone v. Bombay Life Insurance Co. and Killick Nixon Ltd. v. Bank of India, which recognized the trust relationship but emphasized that the NCLT was the appropriate forum to decide on the registration of shares and related disputes.5. Interim Reliefs and Injunctions:The court held that it could not grant interim reliefs or injunctions as the NCLT was already seized of the matter. Section 430 of the Companies Act 2013 explicitly bars civil courts from granting injunctions in respect of any action taken or to be taken by the NCLT. The court emphasized that all reliefs sought by the appellants in the civil suit could be effectively adjudicated by the NCLT.Conclusion:The appeal and applications were dismissed, and the interim order passed earlier was vacated. The court concluded that the NCLT was the appropriate forum to decide on the issues raised by the appellants, and it had the jurisdiction to grant the reliefs sought. The appellants were advised to pursue their remedies before the NCLT. No costs were awarded.