2014 (7) TMI 1349 - HC - Companies Law

Oppression and mismanagement - transfer of plaint schedule properties by way of sale deeds - sale deed was executed with the intention of transferring the plaint schedule property to somebody else for higher consideration - sale deed is a sham document without consideration or not - maintainability of suit in view of Sections 397 and 398 of the Companies Act - HELD THAT - Going by the nature of the relief sought in the suit, it cannot be said that the complaint of the appellant was in respect of a continuing wrong or that the Company Court will be able to grant an effective relief sought for, by her as against the third parties, that too in respect of past transactions. It can be seen that there is no specific exclusion to seek remedies from a civil court. At the most it can be said that remedies are available under the Companies Act as well as under General Law of Contract from the civil court and there is an element of election for the party to approach appropriate forum, considering the nature of the relief he is seeking. In the decision reported in Dwarka Prasad Agarwal (D) by Lrs. and Another Vs. Ramesh Chandra Agarwala and Others 2003 (7) TMI 481 - SUPREME COURT , the Honble Supreme Court while considering the question of jurisdiction for the civil court in a dispute in-between Directors of a company in a suit for eviction and permanent injunction, alleging illegal dispossession from a printing press, referring to the provisions contained in Sections 9 and 10 of the Companies Act, it was held that the above provisions do not oust the jurisdiction of the civil court. The exclusion of the jurisdiction of the civil courts to entertain a civil cause cannot be assumed unless a particular statute contains an express provision to that effect or leads to a necessary and inevitable implication of that nature. Merely because the Companies Act provides for certain remedies it cannot be said that the jurisdiction of civil courts to deal with a case brought before it in respect of some of the matters covered by the Act is barred - the prerequisites to approach the Company Law Board and for grant of an effective remedy under the Companies Act are not available in the present case. The appellant is seeking a relief against all the remaining Directors of the company against a past transaction, which does not amount to a continuing wrong. Therefore, an effective remedy is available to her only before the civil court, for which there is no specific ouster in the Companies Act. Moreover when the appellant can invoke her statutory rights under the Company Law as well as the rights under the common law, she has got every freedom to elect the forum which is more appropriate. The suit filed by her cannot therefore be dismissed as not maintainable. As the suit was dismissed on a preliminary issue, the same is remanded to the court below for further proceedings - appeal allowed.

Summary

Issues Involved:
1. Maintainability of the Suit
2. Jurisdiction of Civil Court vs. Company Law Board
3. Application of Sections 397, 398, and 402(f) of the Companies Act
4. Reliefs Sought and Remedies Available

Detailed Analysis:

1. Maintainability of the Suit:
The primary issue was whether the suit filed by the appellant, a shareholder of the 1st defendant company, seeking a declaration that certain sale deeds executed in 2001 and 2002 were null and void, was maintainable. The suit was initially dismissed on the preliminary issue of maintainability.

2. Jurisdiction of Civil Court vs. Company Law Board:
The defendants argued that the suit was not maintainable under Sections 397 and 398 of the Companies Act, which provide remedies for oppression and mismanagement and require applications to be made to the Company Law Board (CLB). The court below held that the civil court's jurisdiction was barred by necessary implication due to the wide powers granted to the CLB under Sections 397, 398, and 402(f) of the Companies Act.

3. Application of Sections 397, 398, and 402(f) of the Companies Act:
Sections 397 and 398 allow members of a company to apply to the CLB for relief in cases of oppression and mismanagement, respectively. Section 402(f) empowers the CLB to set aside any transfer, delivery of goods, payment, execution, or other acts relating to property made or done by or against the company within three months before the date of the application under Sections 397 or 398. The court below found that these provisions impliedly barred the jurisdiction of the civil court.

4. Reliefs Sought and Remedies Available:
The appellant contended that the relief sought, i.e., a declaration regarding the validity of the sale deeds executed in favor of third parties, could not be effectively granted by the CLB, especially against strangers to the company. The appellant relied on several judgments to argue that the civil court's jurisdiction is not excluded unless expressly barred by the Companies Act.

Judicial Precedents and Analysis:
- M/s. Marikar (Motors) Ltd. v. Ravikumar: The court held that the Companies Act is not a complete code and does not exclude the jurisdiction of civil courts unless expressly stated.
- Dr. T.M. Paul Vs. City Hospital (Pvt.) Ltd. and Others: The Division Bench found that civil courts have jurisdiction to grant reliefs like declaration and injunction, even in the context of company law disputes.
- Dwarka Prasad Agarwal (D) by Lrs. and Another Vs. Ramesh Chandra Agarwala and Others: The Supreme Court held that civil courts have jurisdiction over civil disputes unless expressly barred by statute.
- Raja Ram Kumar Bhargava (Dead) by Lrs. Vs. Union of India (UOI): The court held that where a right preexisting in common law is recognized by statute, both common law and statutory remedies might become concurrent, allowing for an element of election by the parties.

Conclusion:
The appellate court concluded that the civil court's jurisdiction was not expressly or impliedly barred by the Companies Act. The relief sought by the appellant, involving past transactions and third parties, could not be effectively addressed by the CLB. Therefore, the appellant was entitled to seek remedies from the civil court. The suit was found to be maintainable, and the judgment dismissing the suit on the preliminary issue was set aside. The case was remanded to the lower court for further proceedings, with the appellant entitled to a refund of the court fee paid in the appeal.

Final Order:
The appeal was allowed, the judgment dated 20.12.2003 in O.S. No. 326 of 2001 was set aside, and the suit was remanded to the Additional Subordinate Court, Kollam, for further proceedings.