2021 (11) TMI 957 - HC - Companies Law

Civil Court asserts jurisdiction over share forfeiture; Company Law Board's authority clarified. Plaintiffs win unjustified forfeiture case.

J.S.W. Steel Limited, Victoria House, Mumbai Versus Abhishek Kumar S/o Ram Pratap Lalgadhiya, Ram Pratap Lalgadhiya S/o Bansidhar, Smt. Anju Bala W/o Ram Pratap Lalgadhiya, M/s Share Pro Services, Satma Estate

The court affirmed the civil court's jurisdiction over the matter of forfeiture of shares, clarifying that Company Law Board's authority under Section ... Seeking declaration, mandatory & perpetual injunction against the appellants - forfeiture of right to receive equity shares in respect of Secured ‘Zero’ Fully Convertible Debentures (FCD) - HELD THAT:- The submissions made that the jurisdiction to deal with the subject matter of the suits lay with the Company Law Board under the provisions of Section 111A of the Act, apparently have no substance. In a case where the Company refuses to register transfer / transmission of shares or debentures, the transferee could appeal to the then Company Law Board. However, the provision does not deal with a case of forfeiture of either shares or debentures and as such, the power in this regard lies only with the civil courts - As the jurisdiction under Section 111A of the Act has been consistently held to be limited to transfer and transmission of shares / debentures, challenge laid to forfeiture cannot obviously be entertained by the Company Law Board as determined by the Bombay High Court and the Company Law Board itself and as such, the plea raised pertaining to lack of jurisdiction of the civil courts apparently has no substance. As provisions of Section 122 of the Act provide for specific performance of contract to subscribe for debentures and the same can be enforced by a decree, the same necessarily means that the action pertaining to the allotment or forfeiture of debentures can be questioned before the civil courts - the applications were filed under Order VI, Rule 17 CPC and not under Order I, Rule 10 CPC, therefore, as it was not a case of impleading a new party and the applications were only to bring the cause title of the suits in consonance of the present status of the defendant–Company as such, the plea in this regard also has no substance. The attempt to question the validity of orders passed under Order IX, Rule 7 CPC, has been noticed only to be rejected as the appellant had the opportunity to question the validity of the orders during pendency of the first appeals by filing cross-objections in the appeals filed by the respondents-plaintiffs, however, no such attempt was made either by filing cross-objections or by raising issue in this regard during course of hearing in the appeals and as such, the said orders having attained finality, cannot be made subject matter of challenge in the present second appeals - Appeal dismissed. Issues Involved:1. Jurisdiction of the civil court versus Company Law Board under Section 111A of the Companies Act, 1956.2. Validity of the forfeiture of shares by the defendant company.3. Entitlement to a fresh notice after the merger and name change of the defendant company.4. Rejection of applications under Order IX, Rule 7 CPC by the trial court.Issue-wise Detailed Analysis:1. Jurisdiction of the Civil Court versus Company Law Board:The primary contention was whether the civil court had jurisdiction to entertain the suits concerning the forfeiture of shares, or if the matter fell under the purview of the Company Law Board as per Section 111A of the Companies Act, 1956. The court clarified that Section 111A pertains to the transfer and transmission of shares and debentures, not to their forfeiture. The provision allows the Company Law Board to direct the registration of transfer of shares if a company refuses without sufficient cause. However, it does not address the forfeiture of shares or debentures, which remains within the jurisdiction of civil courts. The court cited judgments from the Bombay High Court and the Company Law Board to support this interpretation, affirming that challenges to forfeiture must be dealt with by civil courts.2. Validity of the Forfeiture of Shares:The plaintiffs argued that the forfeiture of their right to receive equity shares was unjustified as they had paid the required installments. The first appellate court found that the company had received the cheque for the third installment before the due date, shifting the burden of proof to the company to show non-receipt before the deadline. The appellate court concluded that the company had no material evidence to prove that the amount was to be paid by a specific means and that the forfeiture was unjustified. Consequently, the appellate court decreed the suits in favor of the plaintiffs, directing the issuance of shares along with consequential benefits.3. Entitlement to a Fresh Notice Post-Merger and Name Change:The defendant company contended that they were entitled to a fresh notice after the merger and name change from Jindal Iron & Steel Limited to JSW Steel Limited. The court noted that the defendant had already appeared in the suits and filed applications under Order IX, Rule 7 CPC. Therefore, the plea for a fresh notice was unfounded as the change in the defendant's name was merely to reflect its current status and did not constitute the addition of a new party. The applications were filed under Order VI, Rule 17 CPC to amend the cause title, not under Order I, Rule 10 CPC, which deals with the impleading of new parties.4. Rejection of Applications under Order IX, Rule 7 CPC:The defendant's applications under Order IX, Rule 7 CPC were rejected by the trial court, and this decision was not challenged during the pendency of the suits or through cross-objections in the first appeals. The court held that the orders had attained finality and could not be contested in the second appeals. The attempt to question these orders in the second appeals was dismissed, as the defendant had ample opportunity to challenge them earlier but failed to do so.Conclusion:The appeals were dismissed as they did not raise any substantial questions of law. The court upheld the first appellate court's decision, affirming the civil court's jurisdiction over the matter and the unjustified forfeiture of the plaintiffs' shares. The defendant's contentions regarding the need for a fresh notice and the rejection of applications under Order IX, Rule 7 CPC were found to be without merit.