2005 (8) TMI 404 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the civil court to entertain the suit.
2. Applicability of the Companies Act, 1956, and the role of the Company Law Board (CLB).
3. Interpretation of relevant case law regarding exclusion of civil court jurisdiction.

Detailed Analysis:

Jurisdiction of the Civil Court to Entertain the Suit:
The primary issue in this case is whether the civil court has the jurisdiction to entertain the suit filed by the plaintiffs. The plaintiffs sought various declarations and injunctions related to the ownership and transfer of shares, the legality of the appointment of directors, and the validity of resolutions passed by the company. The defendants challenged the civil court's jurisdiction, arguing that the reliefs sought are based on rights and obligations under the Companies Act, 1956, and should be addressed by the Company Law Board (CLB).

Applicability of the Companies Act, 1956, and the Role of the Company Law Board (CLB):
The defendants argued that the reliefs sought by the plaintiffs fall within the purview of the Companies Act, 1956. They contended that sections 111, 397, 398, 402, 403, 405, 539, 540, and 542 of the Act provide mechanisms for addressing grievances related to the transfer of shares, oppression, mismanagement, and fraudulent conduct. The defendants emphasized that the CLB has wide powers similar to a civil court and that the plaintiffs should have approached the CLB instead of the civil court.

Interpretation of Relevant Case Law Regarding Exclusion of Civil Court Jurisdiction:
The defendants relied on the Supreme Court's judgment in Dhulabhai v. State of Madhya Pradesh, which outlines the principles for exclusion of civil court jurisdiction. They argued that the civil court's jurisdiction is excluded if a statute provides an adequate remedy through a special tribunal. The defendants also cited Gundaji Satwaji Shinde v. Ramchandra Bhikaji Joshi, which states that exclusion of civil court jurisdiction must be explicitly expressed or clearly implied.

The plaintiffs, on the other hand, argued that they are agitating their individual rights under common law, which are always maintainable in a civil court. They relied on the Division Bench judgment in Santosh Poddar v. Kamalkumar Poddar, where it was held that the civil court's jurisdiction is not ousted in all cases where the Companies Act is applicable. The court in Santosh Poddar's case concluded that the civil court continues to have jurisdiction unless a specific provision of the Companies Act expressly contemplates a special court.

The court in the present case found the reliance on Santosh Poddar's case to be apt. It observed that the prayers in the instant suit are similar to those in Santosh Poddar's case, where declarations were sought regarding the validity of directors' appointments and resolutions passed by the company. The court concluded that the ratio of Santosh Poddar's case is clearly applicable to the present case, and therefore, the civil court has jurisdiction to entertain the suit.

The court also referred to Shirish Finance & Investment (P.) Ltd. v. M. Sreenivasulu Reddy, where it was held that a civil suit is maintainable even in matters of rectification of the register of members. The court emphasized that if a shareholder wants to agitate his common law right to seek rectification, he can approach the civil court directly, especially when disputed questions of law and fact are involved.

Conclusion:
The court rejected the defendants' petition, holding that the civil court has jurisdiction to entertain the suit. The court stayed the proceedings in the city civil court for six weeks to allow the defendants to seek further relief if desired.