TaxTMI 
TaxTMI 
2020 (9) TMI 851
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....0278/2020, 22676/2020 & 22677/2020 1. The issue to be considered in this appeal is: whether elections to the Board of Directors (APEX Council) of a company; allegations of oppression and mismanagement; wrongful appointment of an Ombudsman in violation of Articles of Association, could be adjudicated by a civil court or whether jurisdiction vests exclusively with the National Company Law Tribunal (NCLT). 2. This appeal under sections 104 and 151 read with Order XLIII Rule 1 CPC, impugns an order of the learned ADJ, Tis Hazari Courts, New Delhi in CS No.85/2020 dated 29.02.2020, whereby the appellant's two applications were dismissed and the interim injunction sought by the plaintiff/R-1 was granted. The appellant is supported by R-3, R-4 and R8. The first application, under Order VII Rule 10, sought return of the plaint as notice under Section 80 of the Civil Procedure Code was not served. The second application, under Order VII Rule 11, sought rejection of the plaint on account of a lack of jurisdiction, in view of the unequivocal bar placed on civil courts by section 430 of the Companies Act, 2013. The appellant contends that the suit is not maintainable before a civil court bec....
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....) of the Article of Association, Section 101 of the Companies Act, 2013 and Rule 18(rx) of the Companies (Management & Administration) Rules, 2014 is unauthorized, illegal null and void. 241. (1) Any member of a company who complains that- (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or 242. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be just and equitable. 245 (1) (b) (b) to restrain the company from committing breach of any provision of the company's memorandum or articles; (ii) Pass a decree of declaration declaring that the agenda item no. 3 in the impugned notice dated 13.12.2019, reappointing the unnamed Director retiring by rotation as being beyond the scope and authority of the Defendants and being in violation of Article 17(2), (3) of the Article of Association and Section 152(6) of the....
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....s of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; Or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. 242 (4) (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be....
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.....2019 and to place the issue of Membership/ Secretaryship of the Defendant No. 2 before the AGM alongwith the decision of the Hon'ble Ombudsman agenda of the termination of the Membership/ Secretaryship of the Defendant No.2 before the AGM alongwith the decision of the Hon'ble Ombudsman dated 05.12.2018. 242 (4)(A) 1[(4A) At the conclusion of the hearing of the case in respect of sub-section (3) of section 241, the Tribunal shall record its decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.] 243 (1)(A) The person who is not a fit and proper person pursuant to sub-section (4A) of section 242 shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the said decision: Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years. (vii) Pass a decree of mandatory injunction directing the Defendants to....
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....d if the resolution was passed by suppression of material facts or obtained by mis-statement to the members or depositors; (d) to restrain the company and its directors from acting on such resolution; 5. The appellant further contends that in a similar matter between the Directors of the appellant/DDCA, this Court had declined to entertain the relief sought therein and dismissed the two writ petitions, W.P.(C) Nos. 1878/2020 and 3221/2020. On 28.02.2020 W.P.(C) 1878/2020, was dismissed as withdrawn with liberty to the parties to put their grievances before the NCLT instead. Those petitioners have filed their petitions before the NCLT where the identical issues and grievances -- regarding the aforesaid AGM, elections, etc. are pending adjudication. 6. The appellant contends that sections 430, 241, 242, and 244 of the Companies Act are the relevant provision which cover the lis. They are as under: "430. Civil court not to have jurisdiction. No civil court shall have jurisdiction 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 this Act or any other law for the time being in force a....
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...., make such order as it thinks fit. (2) Without prejudice to the generality of the powers under subsection (1), an order under that sub-section may provide for- (a) the regulation of conduct of affairs of the company in future; (b) the purchase of shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delive....
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....(7) A certified copy of every order altering, or giving leave to alter, a company's memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same. (8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both. 244. Right to apply under section 241 (1) The following members of a company shall have the right to apply under section 241, namely:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls a....
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....ating the parties to civil suit now would not be the appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before the NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today." 8. The appellant also relies upon the judgment in SAS Hospitality Pvt. Ltd. Vs Surya Constructions Pvt. Ltd. 2018 SCC Online Del 11909: ".... 10. Before going into the question as to whether this Court has the jurisdiction to entertain and try the present suit and grant reliefs prayed for, it is necessary to analyze the scheme of the Companies Act, 2013, along with the constitution of the NCLT. The NCLT has been vested with powers that are far reaching in respect of management and administration of companies. The said powers of the NCLT include powers as broad as "regulation of conduct of affairs of the company" under Section 242(2)(a), as also various other specific powers. NCLT is a tribunal which ....
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....any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal." 15. The bar contained in Section 430 of the 2013 Act is in respect of entertaining "any suit", or "any proceedings" which the NCLT is "empowered to determine". The NCLT in the present case would be empowered to determine that the allotment of shares in favour of the Defendant Nos.5 to 9 was not done in accordance with the procedure prescribed under Section 62 of the 2013 Act. The NCLT is also empowered to determine as to whether rectification of the register is required to be carried out owing to such allotment, or cancellation of allotment ordered, if any. The NCLT can also determine if in the interregnum, the Defendant Nos.5 to 9 ought to exercise any voting rights. The NCLT would be empowered to pass any such orders as it thinks fit, for the smooth conduct of the affairs of th....
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....ry to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the Tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not. (3) Challenge to the provisions of the particular Act as ultra vires cannot be brought before Tribunals constituted under that Act. Even the High Court cannot go into that question on a revision or reference from the decision of the Tribunals. (4) When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari may include a direction for refund if the claim is clearly within the time prescribed by the Limitation Act but it is not a compulsory remedy to replace a suit. (5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegality collected a suit lies. (6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of ....
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....T, because of the amount of time which had already lapsed in the suit. However, the definitive ruling apropos the NCLT having wide powers is the real fruit of the Khemka judgment. 11. Mr Sethi further submits that while in SAS Hospitality Pvt. Ltd. vs. Surya Constructions Pvt. Ltd. (supra), this Court had referred to Jai Kumar Arya was distinguished, the latter was a case of calling for the meeting of Board of Directors and appointment of a director, whereas SAS Hospitality Pvt. Ltd. dealt with allotment of shares. Therefore, he submits that the suit is maintainable. 12. Mr. Kirti Uppal, the learned Advocate, submits that Section 463 grants power to civil courts to grant relief in certain cases. He submits that some of the parties now supporting the appellant, were supporting the plaintiffs before the learned trial court; their bonafides are suspect; their locus standi to be parties in this appeal is questionable. He contends that there is an issue of forgery regarding the declaration form of one of 'elected' directors, and this issue should be determined first. He further submits that under Article 17(9)(a) of the Articles of Association, 45 days' notice was necessary before the....
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....ependent observer to monitor the process of elections being conducted by the present Electoral Officer." 14. Evidently, the contentions of Mr Uppal and Mr Singh pertain to the merits of the case. The issue to be determined is: whether the NCLT has the exclusive jurisdiction to adjudicate upon them. The preliminary question of jurisdiction of the civil court to entertain the suit may is to be determined. Therefore, at this stage, would not like to comment on the said application and the relief sought therein. 15. The appellant contends that: i) the trial court erred in not determining first, its jurisdiction to entertain the suit, ii) sections 241, 242 and 244 of the Companies Act, deal with all grievances raised in the suit, iii) the powers of the Tribunal under those provisions are sufficient, and iv) section 430 specifically ousts the jurisdiction of the civil courts apropos the matter with respect to such cases for which powers have been specifically conferred upon the Tribunal. The appellant has relied upon the decision of the Madras High Court in Viji Joseph v. P. Chander 2019 SCC OnLine Mad 10424, which was examining an election dispute under Section 20 of the Com....
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.... that an election dispute of a company would never come within the purview of Section 241 of the Act and therefore, no power can be exercised under Section 242 of the Act. In our considered view, the answer will have to be in the negative. Section 242(h) of the Act cannot be read in isolation. When a power is given to exercise to act, it has to be related to the core of the section, which provided for such an exercise. In our considered view, the learned single Judge has not considered the scope and object behind Sections 241 and 243 of the Act. 17. We may also note that Section 242(k) of the Act also gives a larger power to the tribunal in appointing such number of persons as Directors. Therefore, the power of the Tribunal in giving effect to an order passed on a complaint under Section 241 of the Act is quite exhaustive, keeping in mind the interest of the company. After all, every provision of a statute has to be given its meaning and therefore, can never be ignored. ..... "23. Section 430 of the Act provides for an absolute bar to a Civil Court to entertain any suit or proceedings, which the Tribunal is empowered to do so under the Act. This provision starts with a negati....
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.... after having noted all the earlier decisions, held as follows: "5. The effect of the aforesaid provision is that in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred. 6. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and CA 1965-66/20143, the power would be vested with the National Company Law Tribunal (NCLT) under Section 39 of the said Act. We are conscious of the fact that in the present case, the cause of action has arisen at a stage prior to this enactment. However, we are of the view that relegating the parties to civil suit now would not be the appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded. 7. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before the NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today. 38. The decision of the Apex Court referred above clearly spells o....
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....y of the members (including the petitioners) qua shareholders. (2) It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs. (3) Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the 'just and equitable' rules, those facts must be relevant-to disclose also that the making of a winding up order would unfairly prejudice the minority members qua shareholders. (4) Although the word 'oppressive' is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are 'treating the company and its affairs as if they were their own property' to the prejudice of the minority shareholders-and in which just and equitable grounds would exist for the making of a winding up order.... but in which the 'alternative' remedy provided by S. 210 by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppre....
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....ts as a shareholder." 20. These observations from the four cases referred to above apply to s. 397 also which is almost in the same words as s. 210 of the English Act, and the question in each case is http://www.judis.nic.in whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of s. 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not ....