1996 (10) TMI 430 - HC - Companies Law

Issues Involved:
1. Maintainability of the application for declaration of forfeiture of shares as illegal.
2. Jurisdiction of the High Court under the Companies Act, 1956.
3. Interpretation of Section 2(11) and Section 10 of the Companies Act, 1956.
4. Applicability of common law remedies in the context of company matters.
5. Precedent cases and their relevance to the current case.

Issue-wise Detailed Analysis:

1. Maintainability of the Application for Declaration of Forfeiture of Shares as Illegal:
The appellants sought a declaration that the forfeiture of their shares in respondent No. 1-company was illegal. They argued that since the shares were endorsed as 'fully paid-up', they could not be forfeited even though money was due. The learned company judge held that the application was not maintainable as there was no statutory provision under which an action in respect of forfeiture of shares could be entertained by the court. The provision regarding forfeiture was only in the articles of association of the company, specifically Article 29, which outlines the procedure for forfeiture due to non-payment of call money.

2. Jurisdiction of the High Court under the Companies Act, 1956:
The appellants argued that the High Court has general jurisdiction in all matters relating to companies, as per the definition of 'court' in Section 2(11) and Section 10 of the Companies Act, 1956. However, the learned company judge concluded that Section 10(1) only specifies that in matters where the court has been conferred jurisdiction under the Act, 'court' would mean the High Court unless the matter has been notified to be within the cognizance of the District Court. There is no provision in the Companies Act vesting general authority in the High Court to deal with all matters relating to a company.

3. Interpretation of Section 2(11) and Section 10 of the Companies Act, 1956:
Section 2(11)(a) defines 'the court' with respect to any matter relating to a company as the Court having jurisdiction under the Act, as provided in Section 10. Section 10 specifies the jurisdiction of courts, indicating that the High Court has jurisdiction unless the District Court has been notified to handle the matter. The provisions show that Section 10 is not a blanket provision to assume jurisdiction over all company-related questions. The Act confers specific powers on the Court, the CLB, and the Central Government for different matters.

4. Applicability of Common Law Remedies in the Context of Company Matters:
The High Court or District Court's powers under the Companies Act are limited to rights and obligations arising under the Act. They are not designed to function as common law courts for every grievance related to a company. The jurisdiction of common law courts is not ousted except where specific rights are conferred under the Act. The learned company judge referred to the decision in Wolverhampton New Waterworks Co. v. Hawkesford, which categorizes liabilities and remedies under statutes and common law.

5. Precedent Cases and Their Relevance to the Current Case:
Several precedent cases were discussed to elucidate the jurisdiction and maintainability issues:
- In Mylavarapu Ramakrishna Rao v. Mothey Krishna Rao, it was held that the company court does not have exclusive jurisdiction in all company matters.
- In Avanthi Explosives (P.) Ltd. v. Principal Subordinate Judge, it was clarified that Section 10 specifies the court competent to deal with matters arising under the Act but does not invest the company court with jurisdiction over every matter.
- In K.K. Maheshwari v. Rockhard Building Materials Ltd., it was reiterated that the civil court has jurisdiction unless expressly or implicitly excluded.
- The decision in Nizamabad Corn Products (P.) Ltd. v. Vasudev Dalia was overruled as it incorrectly limited the jurisdiction of civil courts.
- The Supreme Court decision in Public Passenger Service Ltd. v. M.A. Khadar was distinguished as it dealt with Section 155, which no longer exists.
- The decision in Maharaj Kumar Mahendra Singh v. Lake Palace Hotels & Motels (P.) Ltd. was not concurred with, as it incorrectly assumed High Court jurisdiction for enforcing statutory rights without explicit provision in the Companies Act.

Conclusion:
The appeal was dismissed with costs, and the order of stay granted on 9-9-1996 was vacated. The judgment affirmed that the High Court does not have general jurisdiction to entertain applications relating to forfeiture of shares made under the articles of association, and such matters should be pursued through common law remedies.

← Previous Next →