2025 (12) TMI 828 - HC - Companies Law

Suit rejected under Order VII Rule 11 CPC as barred by Companies Act Section 430; NCLT fraud jurisdiction upheld

HC, in revisional jurisdiction, set aside the Trial Court's refusal to reject the plaint under Order VII Rule 11 CPC and ordered rejection of the suit as ... Dismissal of application seeking rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 - invocation of revisional jurisdiction of this Court - Law in relation to Order VII Rule 11 of CPC - Bar u/s 430 of the Companies Act, 2013 - Principle of judicial comity and conundrum of parallel proceedings. - It is claimed that the defendants colluded to create ante dated and forged Shareholders Agreement as well as other documents like board resolutions and security transfer forms, which have been challenged in the suit, for the purpose of misusing the same to undermine the operations of Respondent No. 4 company and create third party rights. A police complaint was also made by the plaintiffs to this effect. Law in relation to Order VII Rule 11 of CPC - HELD THAT:- It is trite law that the scope of revision under Section 115 of the CPC is very limited and is to be exercised only if the subordinate Court appears to have exceeded its jurisdiction or to have failed to exercise its jurisdiction, or if the subordinate Court has exercised its jurisdiction illegally or with material irregularity. The law in relation to rejection of plaint under Order VII Rule 11 of the CPC is well settled. The said Rule provides for summary dismissal of a suit at the threshold, before the parties have led their evidence, if one of the grounds stipulated therein is made out. The purpose of the said provision is to stifle sham civil actions and quell bogus and meaningless suits at the outset when the said suits ex facie appear to be an abuse of the process of law, without further wasting judicial time - Considering that the power to terminate the action without even allowing the claimant to lead evidence and establish its case is a drastic one, the Court is required to limit itself to discerning whether the plaint prima facie discloses a cause of action by perusing the substance of the averments, without paying any heed to the pleas taken in the written statement. While the Court is not precluded from intervening when the litigation is manifestly vexatious, at the same time, if a prima facie case is made out, it is not open to the Court to conduct an enquiry into the merit or trustworthiness of the allegations. Although the petitioner had agitated a number of grounds in its application under Order VII Rule 11 of the CPC, the impugned order has been assailed before this Court on essentially three grounds–the suit could not be entertained by a Civil Court on account of the bar under Section 430 of the Companies Act, 2013; even if the suit is found to be maintainable, the same pertains to a commercial dispute in terms of the Commercial Courts Act, 2015; and the plaint is miserably undervalued. Bar u/s 430 of the Companies Act, 2013 - HELD THAT:- Section 430 of the Companies Act, 2013 imposes an absolute bar on the jurisdiction of civil courts to entertain any suit or proceeding in respect of “any matter” which the Tribunal or the Appellate Tribunal is “empowered to determine” by or under the Companies Act or any other law for the time being in force. Moreover, Section 242 of the Companies Act, 2013 confers a broad and remedial jurisdiction on the Tribunal to pass such an order as it thinks fit to bring to an end the matters complained of. It is also pertinent to note that Rule 11 of NCLT Rules, 2016 specifically provide that the Tribunal is vested with the inherent power to make such orders as may be necessary for meeting the ends of justice. Apart from the same, the Tribunal is vested with the power to call the parties to give evidence by way of affidavit and order cross- examination of deponent, if so required. The Tribunal can also call for production of additional evidence as well as further information, and summon witnesses for recording evidence. Rule 43 of the NCLT Rules, 2016 specifically provides that where in a case of oppression and mismanagement, either of the parties raise the issue of forgery or fabrication of any statutory records, the Tribunal can send the disputed records for opinion of CFSL for the purpose of satisfying itself as to the truth of the allegations. In the case of Rajashree Devi vs. Bonai Industrial Company Ltd. & Ors. [2023 (2) TMI 1436 - ORISSA HIGH COURT], the Hon’ble High Court of Orissa held that the plaintiff's grievance of illegal omission of his name as a Director of the Company without consent and inclusion of defendants in the Register of Members falls squarely within Section 59 of the Companies Act, 2013, which is cognizable exclusively by NCLT. It was further held that Section 430 of the Companies Act, 2013 ousts civil court jurisdiction for such matters and there is no triable issue warranting plenary adjudication. It was thus opined that the Trial Court and First Appellate Court were respectively justified in rejecting the plaint under Order VII Rule 11 of the CPC, and the second appeal was dismissed with no interference. Having found that NCLT is not entirely barred from adjudicating issues of fraud and that the learned Trial Court had erred on the said fundamental aspect by holding that only Civil Courts have the jurisdiction to adjudicate such issues, it is now to be determined as to whether the issues as agitated in the present case in relation to forgery are such which cannot be looked into by NCLT. Undisputably, where the plaintiff asserts public rights or raises seriously disputed questions of title that require declaratory and injunctive relief after evidence and trial, the remedy lies in the civil court. However, as noted above, in the present case, the issues sought to be agitated in the suit are such which are integral to the petition already filed by the petitioner before the learned NCLT - it is also imperative to emphasise that the learned NCLT has not yet made any such determination qua the cogency of such assertions or the complexity of the dispute. If the suit is allowed to continue, the same would also lead to multiplicity of proceedings which could lead to conflicting opinions on the same issues of fact and law. Principle of judicial comity and conundrum of parallel proceedings - HELD THAT:- The bar on the jurisdiction of the Civil Court is coextensive with the aspects which the special forum is empowered to determine, and not greater. The test is substance, not form. If the core controversy is one which the NCLT is empowered to decide by or under the Companies Act, the Civil Court’s jurisdiction stands excluded to that extent and no injunction should be granted in respect of any action taken or to be taken under the Act. In Electrosteel Castings Ltd. v. UV Asset Reconstruction Co. Ltd. [2021 (11) TMI 941 - SUPREME COURT], the Hon'ble Apex Court has read Section 34 of the SARFAESI Act in this very manner, and warned that clever drafting or bare allegations of fraud cannot be used to evade a jurisdictional bar. Once the issues as raised in the plaint have already been agitated in the company petition filed by the petitioner and the learned NCLT is seized of the said integral issues, the Civil Court cannot assume jurisdiction to adjudicate the same, unless it is so found at a subsequent stage while determining the issues at hand that the matter requires detailed and extensive trial into the allegations which cannot be undertaken by the learned NCLT. The impugned order is set aside. Consequently, the plaint of the respondent plaintiffs is rejected under Order VII Rule 11 of the CPC on account of the same being barred under Section 430 of the Companies Act, 2013 - Having found that the suit is not maintainable at this juncture as being barred by Section 430 of the Companies Act, 2013, this Court does not deem it apposite to delve into the remaining issues in relation to pecuniary jurisdiction or the dispute in the suit being manifestly commercial in nature, the same being academic in nature at this stage - Petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, in revisional jurisdiction, the impugned order refusing to reject the plaint under Order VII Rule 11 CPC warranted interference. 1.2 Whether the civil suit, seeking declarations that share-related documents and resolutions are forged, is barred by Section 430 of the Companies Act, 2013 in view of a pending petition before the NCLT under Sections 59, 241 and 242 of the Companies Act, 2013. 1.3 Whether mere allegations of fraud and forgery regarding corporate/share documentation can, in the facts pleaded, oust the jurisdiction of the NCLT and sustain the jurisdiction of the civil court. 1.4 Whether the inability of the NCLT to grant specific declaratory reliefs in the form claimed in the suit prevents the bar under Section 430 of the Companies Act, 2013 from operating. 1.5 Whether, applying principles of statutory ouster and judicial comity, the plaint was liable to be rejected under Order VII Rule 11(d) CPC as being 'barred by law'. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Scope of revisional interference and Order VII Rule 11 CPC Legal framework 2.1 The Court reiterated that revision under Section 115 CPC lies only where the subordinate court has exercised jurisdiction not vested in it, failed to exercise jurisdiction so vested, or acted in the exercise of its jurisdiction illegally or with material irregularity. 2.2 Order VII Rule 11 CPC permits rejection of a plaint at the threshold on specified grounds, including where the suit appears from the plaint to be barred by any law (Rule 11(d)); the power is drastic and must be exercised on a meaningful reading of the plaint alone, in conjunction with the documents relied upon, without reference to the defence. Interpretation and reasoning 2.3 The Court relied on the principles in Dahiben v. Arvinbhai Kalyanji Bhansali, emphasising that: (i) the plaint must be scrutinised as a whole; (ii) the Court cannot test the truth of facts at this stage; (iii) if, assuming the plaint averments to be true, the suit is barred by any law, the plaint must be rejected. 2.4 The Court held that, since the defendant had specifically invoked Section 430 of the Companies Act, 2013, the Trial Court was bound to determine, at the threshold, whether the plaint was 'barred by law' within the meaning of Order VII Rule 11(d) CPC. 2.5 The Trial Court's conclusion that objections under Section 430 and other grounds could be left to be considered at the stage of framing of issues was found to be contrary to the scheme of Order VII Rule 11 CPC and to amount to a material irregularity in the exercise of jurisdiction. Conclusions 2.6 The revisional jurisdiction was rightly invoked, as the Trial Court failed to correctly apply Order VII Rule 11(d) CPC to a pure question of jurisdictional bar under Section 430 of the Companies Act, 2013, warranting interference. Issue 2: Bar of civil court's jurisdiction under Section 430 of the Companies Act, 2013 in the facts pleaded Legal framework 2.7 Section 430 bars civil courts from entertaining any suit or proceeding 'in respect of any matter' which the Tribunal or Appellate Tribunal is empowered to determine by or under the Companies Act, 2013, and also bars injunctions in respect of actions taken or to be taken by such Tribunals. 2.8 Sections 241 and 242 confer wide jurisdiction on the NCLT in cases of oppression and mismanagement, including power to 'make such order as it thinks fit' to bring an end to the matters complained of, with an expansive, remedial set of powers (including setting aside or modifying agreements, restricting transfer/allotment of shares, and a residuary 'just and equitable' clause). 2.9 NCLT Rules, 2016 (Rules 11, 39, 40, 43, 52, 146) recognise: inherent powers; power to receive evidence (including by affidavit and cross-examination); power to call for additional evidence and further information; and, specifically, under Rule 43(3), power in oppression/mismanagement matters to order forensic examination of alleged forgery/fabrication of statutory records. Interpretation and reasoning 2.10 The Court held that Section 430 imposes an 'absolute bar' coextensive with matters which the NCLT is 'empowered to determine'; the expression 'any matter' is to be read broadly, in contradistinction to 'any relief', and is not conditioned on the Tribunal's ability to grant a specific civil remedy such as a formal declaration in the precise form sought in a plaint. 2.11 On a conjoint reading of Sections 241, 242, 430 and the NCLT Rules, the Court held that the NCLT's jurisdiction in company matters is of the 'widest possible amplitude', including power to investigate and adjudicate allegations of fraud, forgery and fabrication where they are incidental and integral to issues of share transfers, board control and corporate affairs. 2.12 Relying on Ammonia Supplies, Shashi Prakash Khemka, SAS Hospitality, Chalasani Udaya Shankar, and especially Shailja Krishna v. Satori Global Ltd., the Court held that: (a) Issues truly relating to rectification, share transfers, or oppression and mismanagement fall within NCLT's exclusive jurisdiction, even if fraud/forgery is alleged; (b) NCLT must itself assess whether allegations of fraud are genuine or mere 'moonshine' and may decide open-and-shut issues of fraud; only seriously complex and extraneous questions of title may justify relegation to a civil suit at a later stage; (c) After the Companies Act, 2013 and constitution of NCLT, the legislative scheme favours consolidation of company law disputes before NCLT rather than civil courts. 2.13 The Court rejected the Trial Court's reasoning that NCLT lacks jurisdiction to adjudicate fraud/forgery or to declare documents forged; it held that there is no such exclusion in the statute and that Section 241(3) positively envisages NCLT inquiring into fraud in the conduct of a company's affairs. 2.14 The Court distinguished reliance on Shazia Rehman and Sita Chaudhry, explaining that those decisions dealt with standalone suits for individual rights and complex title disputes, whereas here the alleged forged Shareholders Agreement, share transfer forms, receipts and board resolutions are central and integral to a pending NCLT petition for oppression/mismanagement and rectification. 2.15 The Court noted that, as per the plaint itself, the alleged forgery is said to be demonstrable by specific circumstances (forensic report, absence of signatories in the place of execution, mismatch of drafts, incorrect corporate data, use of old letterhead, etc.), and found that these issues do not appear so complex or extraneous as to be beyond NCLT's capacity to determine within its evidentiary powers. 2.16 The Court held that the plaintiffs' plea-that NCLT cannot grant the specific declaratory reliefs prayed for-does not negate Section 430, because: (a) the bar attaches to 'matters' which NCLT can determine, not to the precise 'form' of relief; and (b) NCLT, under Section 242, can effectively nullify the legal effect of the impugned documents (shareholders' agreement, transfer forms, resolutions) if they are found fraudulent, even if not by using the exact declaratory language of a civil decree. 2.17 The Court emphasised that both the basis of the NCLT petition and the subject-matter of the civil suit are identical: whether the petitioner firm validly acquired shareholding and control on the strength of the impugned documents; the plaintiffs have already raised the same forgery defence before NCLT. Allowing a parallel civil suit on the same controversy would defeat the statutory scheme and risk conflicting findings. Conclusions 2.18 The issues in the suit-validity and alleged forgery of the Shareholders Agreement, share transfer forms, receipts and board resolutions affecting shareholding and board control-are 'incidental and integral' to the oppression and mismanagement/rectification petition already pending before NCLT under Sections 59, 241 and 242. 2.19 NCLT is empowered to determine those issues, including fraud and forgery, within its statutory and procedural framework; there is no statutory exclusion of such questions from NCLT's remit. 2.20 Consequently, by virtue of Section 430 of the Companies Act, 2013, the jurisdiction of the civil court to entertain the suit is barred, and the Trial Court erred in holding otherwise. Issue 3: Effect of fraud/forgery allegations and doctrine against 'clever drafting' Legal framework 2.21 Section 430 of the Companies Act, 2013 is analogous in structure to Section 34 of the SARFAESI Act, both barring civil court jurisdiction 'in respect of any matter' which the specialised Tribunal is empowered to determine. 2.22 In Electrosteel Castings Ltd. v. UV Asset Reconstruction Co. Ltd., the Supreme Court held that bare or unparticularised allegations of 'fraud' in a plaint cannot be used by 'clever drafting' to evade a statutory bar on civil jurisdiction. Interpretation and reasoning 2.23 The Court applied the same first principles to Section 430, holding that: (a) The true test is the 'substance, not form' of the controversy; (b) If the core controversy is one which NCLT is empowered to decide, civil court jurisdiction is ousted to that extent, regardless of how the plaint is framed or labelled; (c) Mere invocation of terms like 'fraud' or 'forgery' cannot, by itself, displace the bar under Section 430 where the dispute is anchored in the affairs of the company and is cognizable by NCLT. 2.24 The Court held that permitting civil suits to be maintained solely because fraud is alleged would encourage litigants to formulate pleadings strategically to oust NCLT jurisdiction, contrary to the legislative intent underlying the Companies Act, 2013 and the creation of a specialised Tribunal. 2.25 The Court further held that, consistent with Ammonia Supplies and Chalasani Udaya Shankar, it is NCLT which must first examine whether allegations of fraud/forgery are genuine and whether any issue is so complex as to require relegation to a civil court. Only after such a finding by NCLT could a civil suit be contemplated, not pre-emptively. Conclusions 2.26 In the present case, the plaint, even if taken at its highest, demonstrates that the controversy is squarely a company law dispute over shareholding, control and corporate documentation, already sub judice before NCLT; the fraud allegations cannot be used to circumvent Section 430. 2.27 The civil suit is therefore barred by law within the meaning of Order VII Rule 11(d) CPC, notwithstanding the pleading of fraud and forgery. Issue 4: Relevance of NCLT's remedial competence and judicial comity to rejection of the plaint Legal framework 2.28 Section 242 empowers NCLT to pass wide-ranging orders to bring an end to matters complained of, including termination/modification of agreements and setting aside transfers, with appellate scrutiny provided by NCLAT; such orders carry statutory consequences and finality within the company law framework. 2.29 The doctrine of judicial comity urges courts to avoid parallel proceedings and conflicting decisions where a competent forum is already seized of the same substantive controversy. Interpretation and reasoning 2.30 The Court held that, given NCLT's broad 'just and equitable' powers and the pending oppression/mismanagement petition involving the same documents and factual matrix, the civil court proceeding on the same issues would violate both Section 430 and the principle of comity. 2.31 The Court clarified that Section 430's ouster is not contingent on the exact mirroring of remedies between civil court and NCLT; what matters is that NCLT can effectively address and resolve the 'matter' in issue, including nullifying or displacing the legal consequences of impugned documents. 2.32 The Court emphasised that continuation of the civil suit would lead to multiplicity of proceedings and risk conflicting factual and legal findings on the same question of validity/forgery of corporate documents, which is antithetical to the statutory design of a specialised forum. 2.33 However, the Court also recognised that, if at a later stage NCLT were to hold that the dispute (or any part thereof) lies outside its jurisdiction or cannot be adjudicated summarily, the plaintiffs would remain at liberty to seek appropriate civil remedies thereafter. Conclusions 2.34 Since NCLT is already seized of the same underlying controversy and is empowered to grant effective relief, Section 430 and principles of judicial comity together require that the civil suit not proceed in parallel. 2.35 Accordingly, the plaint is liable to be rejected under Order VII Rule 11(d) CPC as barred by Section 430 of the Companies Act, 2013, leaving the dispute to be adjudicated in the first instance by NCLT, subject to its own assessment of jurisdiction and complexity. Overall Dispositive Conclusion 2.36 The impugned order refusing to reject the plaint was set aside; the plaint was rejected under Order VII Rule 11(d) CPC as being barred by Section 430 of the Companies Act, 2013. Questions of pecuniary jurisdiction and classification as a 'commercial dispute' under the Commercial Courts Act, 2015 were expressly left open as academic in view of this finding.