2022 (1) TMI 1076 - HC - Companies Law

Dismissal of Order VII Rule 11(d) Challenge; NCLT Orders Forensic Audit

Anuragha Poultries & Breeders Private Limited, S. Raghuram Versus Padmavathi, V. Balakrishnan, A. Sundarajan, A. Mohanraj, A. Ramasamy And Anuragha Poultries & Breeders Private Limited, K. Kothandapani, K. Vijayalakshmi, K. Sakthivel, S. Raghuram, Vidya Raghuram Versus Padmavathi

The revisions challenging the dismissal of applications seeking rejection of plaints under Order VII Rule 11(d) CPC were dismissed. The suits involving ... Oppression and mismanagement - Sale of property of the company to the third parties - Maintainability of application - application under order VII Rule 11 (d) of the CPC seeking rejection of the plaints on the ground that the suits have barred by law - HELD THAT:- In the case on hand, the sales had taken place in the years 2013 and 2014 where the applications for oppression and mismanagement before the Company Law Board came to be filed in September 2016 which is well beyond three months period. Therefore, it is quite clear that the even though the sales made in the years 2013 and 2014 were the subject matter of the proceedings before the National Company Law Tribunal filed under Section 241 and 242 of the Companies Act, neither the National Company Law Tribunal nor the National Company Law Appellate Tribunal would have power to set aside the sales. In the absence of such power, the bar under section 430 of the Companies Act, would not apply. In T.Vinayaga Perumal Vs. T.Balan [2011 (4) TMI 1209 - MADRAS HIGH COURT], this Court has noted the limitation on the power of the Company Law Board to set aside sales under Section 402 of the Companies Act. Sections 398 to 402 of the Companies Act, 1956, governs oppression and mismanagement. This Court had held that if the sale had happened three months prior to the presentation of the petition, the Company law Board will not have a power to set aside the same. The said Judgment would apply to the case on hand also, which is under Sections 241 and 242 of the Companies Act, 2013 which provide for oppression and mismanagement. There are no material irregularity or illegality in the order of the trial Court, dismissing the applications - revision dismissed. Issues:Challenging dismissal under Order VII Rule 11(d) CPC for suits seeking declaration of invalid sale deeds and oppression/mismanagement in Companies Act, 2013.Analysis:1. The petitioners filed revisions challenging the dismissal of their applications under Order VII Rule 11(d) of the CPC, seeking rejection of plaints due to the suits being barred by law.2. The suits sought a declaration of invalidity of certain sale deeds and complained of oppression and mismanagement involving the company's properties and directors.3. Proceedings were transferred to the National Company Law Tribunal, which granted reliefs and ordered a forensic audit due to prima facie findings of oppression and mismanagement.4. The petitioners argued that the suits were barred under Section 430 of the Companies Act, 2013, as the reliefs could be granted by the Tribunal under Sections 241 and 242, which deal with oppression and mismanagement.5. The bar under Section 430 applies when the Tribunal has exclusive power over a matter subject to a civil suit, as clarified in previous judgments regarding the scope of such bars under the law.6. To invoke the bar under Section 430, it must be shown that the Tribunal had the exclusive power to set aside the sale deeds, as per the provisions of Section 242(2) of the Companies Act.7. The Tribunal's powers under Section 242(2) do not allow for setting aside transactions beyond three months, which does not cover the sales in question from 2013 and 2014.8. Previous judgments highlighted the limitations on the Company Law Board's power to set aside sales, supporting the conclusion that the Tribunal lacks the authority to decide on the validity of the sale deeds in this case.9. The bar under Section 430 of the Companies Act does not extend to the pending suits before the Civil Court due to the Tribunal's lack of empowerment to decide on the validity of the sale deeds.10. Another contention raised relates to the principle that a non-party to a sale deed can seek a declaration that the sale is not binding without seeking to set aside the sale, as established in previous case law.11. Both contentions raised in support of rejecting the plaint were found to lack merit, leading to the dismissal of the revisions.12. The appeal against the National Company Law Tribunal's orders is pending before the National Company Law Appellate Tribunal, with a directive to decide without influence from the current order.