TaxTMI 
TaxTMI 
2023 (7) TMI 216
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....ions made it is necessary to consider the averments made in the plaint. 5. The plaintiff has filed a suit for declaration and injunction. 6. The defendant no. 4 was incorporated as a closely held family company by one Sambhunath Shaw since deceased (in short 'Shambhunath') along with his wife and sister-in-law. 7. Sambhunath was in full control of the company and he used to run, manage and control the said respondent no. 4. 8. Defendant no. 1 is a chartered accountant by profession. The defendant nos. 2 and 3 are the family companies of the defendant no. 1. The entire shareholding of the defendant nos. 2 and 3 are held by the defendant no. 1 by himself and through his family members. 9. Sambhunath engaged defendant no. 1 for rendering professional service and appointed him as the auditor of the defendant no. 4. 10. Sambhunath reposed complete faith in the defendant no. 1 regarding the affairs of the defendant no. 4 except the business actually carried on by the defendant no. 4. The complete faith and trust on the defendant no. 1 by Sambhunath continued till 2009 when Sambhunath for the first time detected diverse financial irregularities committed by the defendant....
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....r of equity shares in the defendant no. 3 company either through his family members or through HUF and also through one PCG Properties Private Limited and Fair Deal Business Organs Private Limited of which he is also a shareholder and director. Further inspection revealed that out of its 12,000 issued shares of PCG Properties Private Limited the defendant no. 1 holds 10,300 number of shares in the said company either by himself or through his family members or through the defendant no. 3. It further transpired that aforesaid 1,70,000 shares of and in the defendant no. 4 were allotted to the defendant nos. 2 and 3 on 30th March, 2002 when the other shareholders of the defendant no. 4 being Sambhunath and his family members were allotted only 1,30,000 shares of defendant no. 4 17. The plaintiff alleged that the defendant no. 4 being a private limited company and a family company of Sambhunath such shares could not have been allotted to and in favour of the defendant nos. 2 and 3. 18. The plaintiff alleged that such shares were caused to be issued by the defendant no. 1 by keeping Sambhnath in dark as under no circumstances he could have allowed the control of the family company....
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....s are primarily controlled by the defendant no. 1 who has in continuance of his act of fraud influenced such transfer of shareholding of the defendant no. 4 company to take actual control of the same." 21. The plaintiff reserved its right to give full particulars of the fraud alleged to have been perpetrated by the defendant nos. 1 to 3 and particularly of the defendant no. 1 until full discovery is made by the said defendants. Under the aforesaid circumstance, the plaintiff filed the suit praying inter alia, for the following reliefs: "a) Declaration that the recordings of the names of the defendant nos. 2 and 3 as holders of 55,000 and 1,15,000 shares of and in the defendant no. 4 respectively in the books and the register of the defendant no. 4 are illegal, fraudulent, null and void; b) Decree for delivery up and cancellation of the share certificates issued in favour of the defendant nos. 2 and 3 by the defendant no. 4 in respect of the shares mentioned in prayer (a) above; c) Decree for perpetual injunction restraining the defendant nos. 1 to 3 and each one of them by themselves or through their respective servants, agents or assigns from exercisi....
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....e Rao on 5th December, 2022 thereby giving rise to the appeal. 25. The reason for dismissal by Justice Rao is summarized in the following paragraphs: "The plaintiff has categorically pointed out the fraudulent act of the defendants in paragraph 28 of the plaint and the said fraudulent act is not committed while initiating proceeding before the NCLT. The plaintiff has also prayed for other relief with regard to perpetual injunction relates to the title of share of the plaintiff. Section 58 and 59 of the companies Act, 2013 deals with refusal by company to transfer of shares but in this case before transfer of share it is to be declared that the recording of share in the name of the defendants have been made fraudulently. The specific case of the plaintiff is fraud and the said fraud is to be adjudicated upon adducing evidence by both the parties before the Civil Court only. Section 65 of the Insolvency and Bankruptcy Code, 2016 has no manner of application in the instant case as the challenge is against issuance of shares by the auditor of a company in derogation of his fiduciary with the company and whether the said act of the auditor is in contravention of the provisio....
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.... be exclusively dealt with by NCLT by reason of Section 430, 241 and 242 of the Companies Act, 2013. 29. Mr. Mallick submits that as observed in Vikram Jairath (supra) under the 2013 Act NCLT has given very wide power akin to that of a Civil Court and in view of such wide power read with Rule 70(5) (a) of the National Company Law Tribunal Rules, 2016 (in short NCLT Rules, 2016) permitting the NCLT to decide any question relating to the title of any person who is a party to the petition to have entered his name in the register the proper remedy lies in approaching the NCLT for proper adjudication of the dispute. Mr. Mallick submits that even if the question is as to whether the issue of share capital was contrary to the articles or any breach of any fiduciary capacity. In view of the decision of Delhi High Court in SAS Hospitality Pvt. Ltd. & Anr. v. Surya Constructions Pvt. Ltd. & Ors., reported in 2018 SCC Online Del 11909: (2019) 212 Comp. Cas 102 NCLT is the proper forum to decide the said issue. 30. The learned Counsel has referred to Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. reported in 2020 (13) SCC 308 in order to emphasis that fraudulent dea....
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....ud and collusion cannot be decided by the Tribunal in a summary proceedings. First respondent has claimed injunction restraining the petitioner from claiming any title or interest in respect of the shares mentioned in the suit schedule. In view of the relief of permanent injunction sought for in the suit, the title of the shares in question has to be decided. The Tribunal has no power to decide the title of the shares in a summary proceedings. Once the Tribunal comes to the conclusion that the title of the shares is involved, the issues have to be decided only by the Civil Court. For this, the learned Senior Counsel appearing for the first respondent relied on the decision reported in (2016) 1 Supreme Court Cases 423 in (Jai Mahal Hotels Private Limited v. Devraj Singh and others) and (2016) 198 CompCas 481 (Kar) in (K. Ravinder Reddy v. Alliance Business School and others). 27. A reading of Section 58 of the Companies Act, 2013, shows that rectification of register of members has to be decided by the Tribunal and as per Section 430 of the Companies Act, 2013, the Civil Court has no jurisdiction. At the same time, in the judgment relied on by the learned Senior Counsel for....
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....not the owner of shares at any point of time and that there was no fraudulent transfer in collusion with the officials of the second respondent. In this circumstance, the issue on title of shares is the main issue to be decided in the suit filed by the first respondent. 33. It is submitted that Delhi High Court judgment is clearly distinguishable on facts. The instant suit is not for rectification of the register or issuance of any share in breach of the scheme. The principal grievances that the appellant as auditor of the company at the material point of time had acted in breach of his fiduciary capacity and made allotment in breach thereof and also in breach of the Companies Act. This issue is not an issue falling within the ambit of Section 58 and 59 of the 2013 Act or Section 65 of the IBC or Rules 70(5)(a) of the NCLT Rules 2016. The division Bench judgment in Vikram Jairath (supra) is also distinguishable on facts. It is submitted that the Appeal Court was considering the order of injunction and in deciding the said issue the appellate Court interpreted Section 58, 59, 241 and 242 of the Companies Act, 2013. On analyzing of the said sections the Appellate Court declined to....
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....Companies Act, 2013 reads: "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." 38. We have briefly narrated the facts stated in the plaint. It is clear from the averments made in the plaint that it is not a proceeding for refusal of registration or rectification of register under Section 58 or 59 of the 2013 Act. Section 58 contemplates a situation where a private company limited by share refuses whether in pursuance of any power of the Company under its article or otherwise to register the transfer of or the transmission by operational law of the right to any security or interest within a period of 30 days from the date on which the instrument of transfer or the intimation of such....
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....re the Company Law Board, which was then taken up under the Amended Act by the National Company Law Tribunal. 4. In a significant order that was passed by the NCLT on 09.11.2016, the NCLT recorded that it was acknowledged, both by the Company as well as by the SEBI, that procedural aspects and due care were not adhered to in the process of issuance of duplicate shares, as otherwise such fraud would easily have been unearthed. In the order passed by the NCLT, the NCLT adverted to the aforesaid facts and afforded relief to the Appellant in the following terms: The objection of Respondent No. 1 that the case in hand cannot be adjudicated by the Tribunal is a frivolous attempt to escape any liability and or grant relief to the Petitioner. This Bench fails to understand why the Petitioner should resort to a civil court in order to prove her title. Apart from her oral testimony and her original share certificates, there is little else to be adduced in evidence even in a Civil Suit. She has her original certificates in hand. The Respondents are aware of the fraudulent acts perpetuated on her and have even initiated criminal proceedings. There is no reason for the Petitio....
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....rest here. In case any claim is based on some seriously disputed civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member and if the court feels such claim does not constitute to be a rectification but instead seeking adjudication of basic pillar some such facts falling outside the rectification, its discretion to send a party to seek his relief before the civil court first for the adjudication of such facts, it cannot be said such right of the court to have been taken away merely on account of the deletion of the aforesaid proviso. Otherwise under the garb of rectification one may lay claim of many such contentious issues for adjudication not falling under it. Thus in other words, the court under it has discretion to find whether the dispute raised is really for rectification or is of such a nature that unless decided first it would not come within the purview of rectification. The word "rectification" itself connotes some error which has crept in requiring correction. Error would only mean everything as required under the law has been done yet by some mistake the name is either omitted or wrongly recorde....