1994 (4) TMI 267 - HC - Companies Law

Summary

Issues Involved:
1. Principal civil court for Bombay for removal of trustees under Chapter VII of the Indian Trusts Act, 1982.
2. Civil suit for removal of directors of a private limited company incorporated under the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Principal Civil Court for Removal of Trustees:
The primary issue was to determine which court holds jurisdiction for the removal of trustees under Chapter VII of the Indian Trusts Act, 1982. The defendants argued that only the High Court, being the principal civil court of original jurisdiction for Bombay, could entertain such suits, citing sections 73 and 74 of the Indian Trusts Act. They contended that the city civil court, with its limited pecuniary jurisdiction, is not the principal civil court. The court referred to the decision in Chatrabhuj Mavji Merchant v. Sumati Morarjee, which established that breach of trust suits must be instituted in the principal court, which for Bombay is the High Court. The court concluded that the city civil court is an additional civil court and not the principal court, thus lacking jurisdiction for such matters.

2. Civil Suit for Removal of Directors:
The second issue pertained to whether a civil suit could be filed for the removal of directors of a private limited company. The defendants argued that the Companies Act, 1956, provides a comprehensive mechanism for the appointment, functioning, and removal of directors, specifically under sections 10, 283, and 284. They asserted that any disputes regarding the removal of directors must be resolved through the procedures outlined in the Companies Act, and not through civil suits, referencing the Supreme Court decision in Dhulabhai v. State of MP. The court agreed, noting that the Companies Act's detailed provisions for internal management and the removal of directors imply that civil courts should not interfere in such matters. The court emphasized that the rule in Foss v. Harbottle and its exceptions, such as acts that are ultra vires or constitute fraud, did not apply in this case.

Conclusion:
The court concluded that the city civil court at Bombay is not the principal civil court of original jurisdiction for Bombay and, therefore, lacks jurisdiction to decide suits seeking the removal of trustees. Additionally, it held that the civil court does not have jurisdiction to entertain suits for the removal of directors of a limited company, as such matters are governed by the Companies Act. Consequently, the revision application was allowed, and the trial court's order was set aside, with the preliminary issue of jurisdiction answered in the negative. The operation of this order was stayed for eight weeks upon the respondent's counsel's request. The application was allowed with no order as to costs.