TaxTMI 
TaxTMI 
2020 (9) TMI 851
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....20, 11803/2020, 11804/2020, 20277/2020, 20278/2020, 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....
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.... notice dated 13.12.2019, being in violation of Article 10(6) 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 Articl....
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....to the former and new Ombudsman as being illegal, unauthorized and void. 241(1)(a)(b) (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 (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 think....
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....d execute the order and directions of the Hon'ble High Court of Delhi passed in FAO no. 62/2019 in its order and judgment dated 02.07.2019 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....
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....restrain the company from committing breach of any provision of the company's memorandum or articles; (c) to declare a resolution altering the memorandum or articles of the company as void 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 sha....
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....ould unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, 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....
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....order, either in the memorandum or in the articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered. (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 ....
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....hat in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and 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. 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 ....
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.... said power, without the section implementing the said issuance, is of no effect, and has no consequence. Any dispute in respect of rectification of the register of members under Section 59, can be raised by any person aggrieved to the Tribunal i.e., the NCLT. 14. Section 430 of the 2013 Act, which bars the jurisdiction of the Civil Court, has to be given effect to in this background, and reads as under: "Section 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 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 deter....
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....or the statutory Tribunal has not acted in conformity with the fundamental principles of judicial procedure. (2) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case it is necessary 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 f....
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....present suit. He contends that the suit simply challenged the notice of the holding of the Annual General Meeting and other agenda mentioned therein as being violative of the extant procedure. In support of his contentions, he relies upon the judgment in Jai Kumar Arya vs. Chhaya Devi 2017 SCC OnLine Del 11436. He submits that in Shashi Prakash Khemka, albeit the Supreme Court found that the NCLT had jurisdiction in the matter, it allowed the suit to continue before the civil court. This contention is ex facie untenable because the Supreme Court did so as it was of the view, that it would have been disadvantageous to the parties to send them to the NCLT, 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 su....
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....r Cricket in India & Ors. Vs. Cricket Association of Bihar & Ors. (2018) 9 SCC 624 and stay the operation of letters dated 29.12.2019 and 03.01.2020 issued to the learned Ombudsman; and b) Direct removal/replacement of the Ld. Ombudsman of the Appellant and in the meanwhile stay the illegal orders passed by the Ld. Ombudsman qua the affairs of the Appellant Association; and c) Direct the Ld. Ombudsman to not pass further orders qua the affairs of the Appellant Association except on the complaints referred to the Ld. Ombudsman by the Apex Council as per the Articles of Association of the Appellant as approved by the Hon'ble Supreme Court; and d) Appoint an independent 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 sough....
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....ad. Certainly such a challenge would come within purview of oppression and mismanagement. A technical view contrary to that will make the entire object behind Section 241 of the Act as redundant. 16. Section 242(h) of the Act also provides for removal of Managing Director, Manager or any other Directors of the Company. As discussed above, to understand Section 241 of the Act, a little peep into Section 242 of the Act would be necessary. To put it differently, it can never be accepted that on a complaint involving an act of oppressiveness and mismanagement, a Managing Director, Manager or any other Directors of the company can be removed as against their alleged wrongful entry to function in the said capacity. Can it ever be said 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 le....
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....vision Bench judgement of the Delhi High Court in Jai Kumar Arya v. Chhaya Devi (FAO (OS) 253/2017 & CM No. 33724/2017 dated 07/11/2017), we have already discussed the application of principle of Ejusdem Generis. In the light of Section 430 of the Act, which has been dealt with by the Apex Court in Shanti Prasad Jain v. Kalinga Tubes Ltd., ((1965) 2 SCR 720 dated 14.01.1963) coupled with the fact that there also the appeal is filed as against the order made in interlocutory application filed under Order XXXIX Rules 1 and 3 of the Code of Civil Procedure, we accordingly hold that the said decision will not help the case of respondents.... .....37. On the effect of Section 430 of the Act, the Apex Court in Shashi Prakash Khemka v. NEPC Micon Ltd., (2007 SCC OnLine SC 17), 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 ve....
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.... action under this section. 16. We may in this connection refer to four cases where the new s. 210 of the English Act came up for consideration, namely, (1) Elder v. Elder and Watson,(1), (2) George Meyer v. Scottish Cooperative Wholesale Society Ltd.(2), (3) Scottish Co-operative Wholesale Society Ltd. v. Meyer and another(3), which was an appeal from Meyer's case(2), and (4) Re. H. R. Harmer Limited. Among the important considerations which have to be kept in view in determining the scope of s. 210, the following matters were stressed in Elder's case(1) as summarised at p. 394 in Meyer's case(2) :- "(1) The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority 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 t....
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....play on which every shareholder who entrusts his money to a company is entitled to rely. ... But, apart from this, the question of absence of mutual confidence per se between partners or between two sets of shareholders, however relevant to a winding up seems to have no direct relevance to the remedy granted by S. 210. It is oppression of some part of the shareholders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not come within s. 210. It is not lack of confidence between shareholders per se that brings s. 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights 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 o....
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....te jurisdiction has been given to the NCLT to deal with all aspects of issues, as agitated in the suit. 19. The appellant contends that the dicta of the Supreme Court in Aruna Oswal v. Pankaj Oswal & Ors. Civil Appeal No. 9340/2019, would not be applicable as that dealt with the locus standi of the petitioner whose infinitesimal shareholding was yet to be determined. Whereas in the present case, the process of election to the Board of Directors/Members of the Apex Council, has been challenged because of it being allegedly contrary to the procedure laid down in the AoA and the notice calling for the AGM, and that the elections were held on the basis of a voice vote instead of paper ballot, contrary to what was mentioned in the AGM notice. 20. What emanates from the preceding arguments and on consideration of the comparative chart hereinabove, is that sections 241, 242 and 244 of the Companies Act deal with all the issues which have been raised in the suit. The NCLT has been specifically conferred powers to address grievances relating to the affairs of the company, which may be prejudicial or oppressive to any member of the company, or for issues of appointment of directors. Th....