2015 (10) TMI 955 - HC - Companies Law

Jurisdiction of CLB under Section 111A in case of Fraud Appellants contended that sales consideration for transfer of shares has not been paid in full Date of transfer of shares given by the Respondents clashes at different instances Appellant further contends that they did not cease to be the members Respondents contend that the appellants have played fraud against them with regard to share transfer Further holds that the Civil Court alone has the jurisdiction to enquire into allegations of fraud Respondents states further that the petition filed by appellants on the basis of the continued membership is contrary to the record. Held That - Jurisdiction of the CLB is summary in nature in case of allegations such as fraud - Proper remedy is to first approach the Civil Court before approaching the CLB with an application under Section 111A - Disputes raised by the appellants are not confined to rectification Appellants advised to approach the Civil Court for relief succeeding in the same it can then approach the CLB for rectification of the Register Decided in favour of the Respondents.

Summary

Issues:
- Dispute regarding share transfers and alleged fraud
- Jurisdiction of the Company Law Board under Sections 397, 398, and 111A of the Companies Act, 1956
- Maintainability of the company petition
- Allegations of fraud and appropriate legal remedy

Analysis:
The judgment involves a dispute arising from an agreement for share transfer between the appellants and respondent No.2, leading to multiple reliefs sought under Sections 397 and 398 of the Companies Act, 1956. The main contention was whether the share transfers were valid and if respondent Nos. 2 to 6 acted fraudulently. The Company Law Board allowed C.A.No.165 of 2011, dismissing C.P.No.34 of 2011, primarily on the grounds that the share transfers were executed as per the agreement, rendering the company petition not maintainable under Section 397 read with Section 399 of the Act.

Regarding the jurisdiction of the Company Law Board, the appellants argued that the share transfers were fraudulent as the sale consideration was not paid in full. However, the respondents contended that the Board's jurisdiction is summary in nature and cannot adjudicate fraud allegations, suggesting a civil suit as the appropriate remedy. Citing the Supreme Court's judgment in Ammonia Supplies Corpn. vs. Modern Plastic Containers (P) Ltd., the respondents emphasized that only a civil court can inquire into fraud allegations.

The Court analyzed Sections 111A and 155 of the Act to determine the scope of the Company Law Board's jurisdiction. It highlighted the need to resolve disputed issues such as full payment of sale consideration, validity of share transfers, and fraud allegations before directing rectification of the Register of members. The judgment emphasized that serious disputes like fraud allegations should be first addressed in civil court before approaching the Company Law Board for rectification under Section 111A.

Consequently, the Company Appeal was dismissed, granting liberty to the appellants to seek relief from the competent civil court. The judgment underscored that the civil court's jurisdiction is not ousted in cases involving complex disputes beyond mere rectification, directing parties to establish facts like fraud before seeking rectification from the Company Law Board.