TaxTMI 
TaxTMI 
2025 (4) TMI 1019
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....8 of Companies Act, 2013 ('2013 Act'). Present suit has been filed by the Plaintiffs seeking the following reliefs against Defendants No. 2 to 10: "1. Declare that Defendant Nos. 2 to 10 have forfeited their authority and ceased to represent Roshanara Club Limited (RCL) in any capacity, including as Secretary, General Secretary, Director(s), or members of the Executive Committee/Management Committee, by virtue of the expiration of their term of office on 30.09.2023, pursuant to Clause 44 of the Memorandum of Association of RCL., and/or 2. Declare that, with effect from 01.10.2023, Defendant Nos. 2-10 constitute a defunct and dissolved body, having ceased to possess any legal authority or competence to act on behalf of Roshanara Club Limited (RCL), by reason of the expiration of their term of office, and/or 3. Declare that all actions, decisions, and transactions undertaken by Defendant Nos. 2-10 post 01.10.2023, in the name of Roshanara Club Limited, assuming themselves to be members of the Executive/Managing Committee of RCL, are null and void, having been undertaken without authority, and are consequently non-binding and of no legal effect upon RCL, bei....
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....r appointment till date, and further order a forensic audit into the accounts of RCL to investigate and scrutinize all financial transactions, dealings, and decisions made by the Defendants during their tenure, and/or 13. In the event of finding accounts being irregular or deficient or wrongly kept, then Defendant(s) to be held jointly and severally responsible to bring back the money forthwith, and/or 14. Direct Defendants Nos. 2 to 10 to furnish a detailed, accurate, and transparent inventory of all goods, assets, and properties belonging to Roshanara Club Limited (RCL), as reflected in the books of accounts and physically present on site, from the date they assumed office in the Executive/Management Committee of RCL up to the date of their handing over of charge, and/or 15. In the event that any goods, assets, and properties belonging to Roshanara Club Limited (RCL) are found to be missing, unaccounted for, misappropriated, misused, alienated, or carelessly lost by the Defendant(s), this Hon'ble Court be pleased to direct the Defendant(s) to be held jointly and severally responsible to restore, return, and re-deliver all such goods, assets, and pro....
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....ect matter of present suit is covered under provisions of Sections 241 and 242 of the said Act. In support of this plea, learned Senior Counsel placed reliance on the judgment of Co-ordinate Bench of this Court in SAS Hospitality Pvt. Ltd. And Another v. Surya Constructions Pvt. Ltd. and Others., 2018 SCC OnLine Del 11909, wherein the plaint was rejected on account of express bar under Section 430 of the 2013 Act, holding that powers of NCLT are broader and wider than what can be exercised by this Court in exercise of civil jurisdiction under Section 9 of CPC. NCLT is a specialised Tribunal constituted for the purpose of speedier and effective regulation of the affairs of the companies. Court, in turn, relied on the judgments of the Supreme Court in Union of India v. R. Gandhi, President, Madras Bar Association, (2010) 11 SCC 1 and Madras Bar Association v. Union of India and Another, (2015) 8 SCC 583. Reliance was also placed on the judgment of the Co-ordinate Bench in Delhi & District Cricket Association v. Sudhir Kumar Aggarwal and Others, 2020 SCC OnLine Del 1223, wherein it was held that NCLT has been specifically conferred power to address grievances relating to affairs of th....
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....e Management of the company's affair by approaching the Civil Court. 6. Responding to the preliminary objection raised by Defendant No. 1, Mr. Mohit Chaudhary, learned counsel for the Plaintiffs submits that the suit is maintainable and summons be issued to the Defendants after registering the plaint as a suit. It was argued that in case of companies governed by provisions of Companies Act, 2013, including RCL which is a Section 8 company, dispute redressal mechanism is provided in Section 241 of the 2013 Act, which enables filing of application to NCLT for relief in cases of oppression etc. and sub-Sections (1) to (3) detail who can apply under the said provision. However, right to apply under Section 241 is not absolute and there is a threshold provided under Section 244 of the 2013 Act. For a company with a share capital, the eligibility to apply arises when there are 100 shareholders or 1/10th strength of total members while for a company not having a share capital, the eligibility requires a strength of not less than 1/5th of the total number of its members. In this light, it was urged that the present suit is filed by five members of RCL out of 4000 members and as Plaintif....
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.... took a conflicting stand and opposed the grant of waiver as the threshold of requisite strength of 1/5th members was not met. 9. Learned counsel also relied on the judgment of the Division Bench of the Calcutta High Court in case of Eastern Indian Motion Picture Association and Others v. Milan Bhowmik and Others, 2024 SCC OnLine Cal 1325, where in a similar situation it was held that the learned Single Judge had rightly declined to reject the plaint since the remedy of approaching NCLT is conditional upon grant of application by the Tribunal to waive the eligibility requirement and even if Plaintiffs did approach NCLT, there was no guarantee that the Tribunal would allow the application and in the event the application was rejected, Plaintiffs will have to approach the Civil Court. It was observed that Plaintiffs were justified in taking recourse to suit remedy which existed, rather than one which did not exist but could come into existence on fulfilment of uncertain conditions. 10. On the judgments cited by learned Senior Counsel on behalf of Defendant No. 1, learned counsel for the Plaintiffs argued that as to the legal proposition laid down in SAS Hospitality Pvt. Ltd. (s....
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....er proviso to Section 244 (1) (b) of the 2013 Act also lies with NCLT. It is not for the Plaintiffs to pre-judge or speculate that if and when, waiver is sought for applying under Section 241, the same shall be declined by NCLT. Assuming for the sake of argument that NCLT rejects the application for waiver under proviso to Section 244 (1) (b) of the 2013 Act, the remedy is not to approach the Civil Court but to file a statutory apply under Section 421 of the 2013 Act before National Company Law Appellate Tribunal ('NCLAT'). 13. Heard learned counsel for the Plaintiffs, learned Senior Counsel for Defendant No. 1 and learned counsels for Defendnant No. 14 and examined their rival contentions. 14. In view of the preliminary objection raised by Defendant No. 1 to the maintainability of the suit, the question that needs to be considered is whether this Court has the jurisdiction to entertain the suit, in light of provisions of Section 430 of the 2013 Act. A connected issue was also raised and needs determination as to whether the plaint can be rejected at the threshold in the absence of a formal application under Order VII Rule 11 CPC. 15. There is merit in the contention of De....
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....ly, on issuing summons it will be always open to the defendant to make an application as well under Order 7 Rule 11. In other words, the power under Order 7 Rule 11 is available to the court to be exercised suo motu. (See in this regard, the judgment of this Court in Madiraju Venkata Ramana Raju [Madiraju Venkata Ramana Raju v. Peddireddigari Ramachandra Reddy, (2018) 14 SCC 1].)" 16. In light of the binding dictum of the Supreme Court in the aforementioned judgments, there can be no debate that at the threshold itself, the Court can reject a plaint where it is barred on account of any infirmity or disability under Rule 11 of Order VII CPC and as observed by the Supreme Court, it is in fact that the duty and obligation of the Court to examine if the plaint has any infirmity based on the averments in the plaint, before issuing summons and therefore, there is no requirement of waiting for a formal application under Order VII Rule 11 CPC in that event and contention of the Plaintiffs to this extent merits rejection. 17. Coming to the only other issue of bar under Section 430 of the 2013 Act to entertain the suit, I may first examine the provision which is extracted hereunder, fo....
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....tion to go into allegations pertaining to oppression or mismanagement of the company or where conduct of the affairs of the company is prejudicial to the interest of the company under Section 241 of the 2013 Act, jurisdiction of Civil Court will be excluded by virtue of Section 430 of the 2013 Act. It was also observed that powers of NCLT are extremely broad and are more than what a Civil Court can do under Section 9 CPC. NCLT is a specialised Tribunal constituted for speedier and effective regulation of the affairs of the company. The Court in turn relied on the observations of the Supreme Court in R. Gandhi, President, Madras Bar Association (supra) and Madras Bar Association (supra), in the context of the creation of the NCLT and NCLAT by a specific amendment in the law. Relevant passages of the judgment are as follows:- "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 Se....
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....3 (hereinafter, 'Madras Bar Association') the NCLT has been created by a specific amendment in the law. The constitution of the NCLT has been upheld. The relevant observations in the said R. Gandhi (supra) is set out below: "33. The argument that there cannot be 'whole-sale transfer of powers' is misconceived. It is nobody's case that the entire functioning of courts in the country is transferred to Tribunals. The competence of the Parliament to make a law creating Tribunals to deal with disputes arising under or relating to a particular statute or statutes cannot be disputed. When a Tribunal is constituted under the Companies Act, empowered to deal with disputes arising under the said Act and the statute substitutes the word 'Tribunal' in place of 'High Court' necessarily there will be 'whole-sale transfer' of company law matters to the Tribunals. It is an inevitable consequence of creation of Tribunal, for such disputes, and will no way affect the validity of the law creating the Tribunal." 18. In Madras Bar Association (supra), relying upon the decision in R. Gandhi (supra), the Supreme Court observed as under: "11. First of all the creation of Con....
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.... that there should be technical members in the Tribunals. When any jurisdiction is shifted from courts to Tribunals, on the ground of pendency and delay in courts, and the jurisdiction so transferred does not involve any technical aspects requiring the assistance of experts, the Tribunals should normally have only judicial members. Only where the exercise of jurisdiction involves inquiry and decisions into technical or special aspects, where presence of technical members will be useful and necessary, Tribunals should have technical members. Indiscriminate appointment of technical members in all Tribunals will dilute and adversely affect the independence of the Judiciary. (d) The Legislature can re-organize the jurisdictions of Judicial Tribunals. For example, it can provide that a specified category of cases tried by a higher court can be tried by a lower court or vice versa (A standard example is the variation of pecuniary limits of courts). Similarly while constituting Tribunals, the Legislature can prescribe the qualifications/eligibility criteria. The same is however subject to Judicial Review. If the court in exercise of judicial review is of the view that such tribun....
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....after, 'Dhulabai'), and held as under: "101. As, perhaps, the most authoritative pronouncement on the issue, the Constitution Bench of the Supreme Court, in Dhulabhai v. State of M.P., AIR 1969 SC 78, set out the following 7 clear principles (of which only the first and last are really relevant to the present case), to be applied for deciding whether a suit was barred under Section 9 of the CPC: "(1) Where the statute gives a finality to the orders of the special Tribunals the civil courts' jurisdiction must be held to be excluded if there is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with 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 ....
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....le to do and is, therefore, an efficacious alternative to the civil court. Even when these two indicia stand satisfied, the jurisdiction of the civil court would continue to exist where the action, complained against, violates the statute. 28. If these two tests are applied i.e., as to whether the Tribunal's order is attributed finality and as to whether the Tribunal would be able to do what a Civil Court could do, it is clear that an order under Section 59 of the 2013 Act has specific consequences for non-compliance. The order is appealable to the appellate tribunal. The Tribunal has to apply the principles of natural justice. Under Section 242 (2)(d) of the 2013 Act, the Tribunal can impose restrictions on the transfer or allotment of the shares of the company. It can also pass an interim order under Section 242 (4) of the 2013 Act. Consequences for non-compliance have also been provided under Section 242(4) of the 2013 Act. The Plaintiffs have a right to apply Section 242 of the 2013 Act as they own 99.96% shareholding which has been diluted to 21.44%. Any member with more than 1/10 of the issued share capital can approach the Tribunal. Thus, even as per Jai Kumar A....
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....vil court - to deal with all issues for which powers have been conferred upon the Tribunal. For instance Rule 11 deals with inherent powers of the NCLT to conduct a full trial, in order to prevent abuse of justice; Rule 34 specifically allows for determination of procedure not provided for already in accordance with the principles of natural justice; Rules 39 and 40 provide for production of evidence; Rule 43 empowers the Tribunal to call for further information or evidence; Rule 47 provides for administration of oath to witnesses; Rule 51 gives power to regulate procedure; Rules 56 and 57 deals with the execution of orders passed by the Tribunal; Rule 58 provides for the effect of non-compliance with orders. Viji Joseph, as mentioned above in paragraph 24, also states that the powers of the Tribunal cannot be termed as 'summary'. As discussed hereinabove, complete jurisdiction has been given to the NCLT to deal with all aspects of issues, as agitated in the suit. xxx xxx xxx 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....
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....re Court has extensively referred to the observations of the Supreme Court in S.P. Jain (supra) as also to the observations in Jai Kumar Arya (supra) and Viji Jospeh (supra):- "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 Companies (Management and Administration) Rules, 2014, involving the maintainability of the election of the Board of Directors through electronic means. After analyzing section 242 and other circumstances pertaining to the case, it concluded that only the Tribunal had powers to deal with the issue raised....
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.... cannot be read in isolation. When a power is given to exercise to act, it has to be related to the core 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. xxx xxx xxx 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 negative covenant and thus, makes the intention of the legislature very clear. The object is to decide the disputes of the company. This section gives power to the Tribunal to determine, enforce law qua the company for any violation. Law includes any o....
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....isdiction 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 out the scope of Section 430." 17. Viji Joseph, discusses the expanse of s. 430, while relying on Shashi Prakash Khemka. It also mentions Jai Kumar Arya, as relied....
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....n 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 oppressive conduct of the majority. (5) The power conferred on the Court to grant a remedy in an appropriate case appears to envisage a reas....
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....s as s. 210 of the English Act, and the question in each case is 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 be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression mu....
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.... the Act and these powers are wider and broader than the powers of the Civil Court under Section 9 CPC, being a specialised Tribunal created for the purpose of regulating adjudication of the affairs of the companies expeditiously as observed in SAS Hospitality Pvt. Ltd. (supra). 23. Coming now to the Scheme of the 2013 Act, Section 241 (1) (a) enables any member of a company to file an application before NCLT complaining that affairs of the company have been or are being conducted in a manner prejudicial to public interest or are prejudicial or oppressive to him or any member or members or to the interests of the company. In Jai Kumar Arya (supra), the Division Bench observed that amplitude of the words used in Section 241(a) are wide and expansive and cover all cases where the complaint is made alleging mismanagement of the affairs of the company in a manner prejudicial or oppressive to the complainant or the company or any member or members of the company albeit Section 241 (1) (a) limits the applicability to cases falling under Chapter XVI of the Act. Section 241 (1) (b) provides that application can be made only by a member who has a right to apply under Section 244. Section....
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....is extracted hereunder: "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 and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation.-For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (2) Where any members of a company are entitled to make an application under sub-sectio....