1999 (2) TMI 711 - HC - Companies Law

Summary

Issues:
Jurisdiction of Civil Court challenged due to application of section 111 of Companies Act in a suit regarding the allotment of equity shares to promoters by a public limited company.

Analysis:
1. The appellant challenged the trial court's order, arguing that section 111 of the Companies Act does not apply in the present case as the respondent company is a public limited company. The appellant contended that the trial court erred in holding that the Civil Court lacked jurisdiction, as the plaintiff's remedy was to approach the Company Law Board under section 111. It was emphasized that the relief sought in the civil suit was not related to the transfer of shares, but to challenging the resolution of allotting shares to promoters, which does not constitute a transfer.

2. The respondent's counsel countered by stating that prior to the 1995 amendment, section 111 applied to both private and public limited companies. The respondent argued that the word 'transfer' in section 111 includes share allotment, providing the plaintiff with the right to appeal to the Company Law Board under section 111-A. The respondent contended that remedies under section 111 before the 1995 amendment for public limited companies are now available under section 111-A.

3. The court clarified that post the 1995 amendment, section 111 applies only to private limited companies, not public limited companies like the respondent. It was noted that section 111 granted appeal rights to transferees against share transfer refusals and wrong entries in the register of members. However, the right of appeal under sub-section (4) of section 111 did not extend to allotment of shares, as evidenced by the enactment of section 111-A for public limited companies, which limited appeal rights to share transfers only.

4. The judgment highlighted that the legislature's conscious decision to exclude the wider appeal rights provided by sub-section (4) of section 111 in section 111-A for public limited companies indicates that no appeal rights exist for allotment of shares. Consequently, the plaintiff cannot seek relief through the Company Law Board under section 111-A for matters related to share allotment. The court allowed the appeal, setting aside the trial court's order and affirming the Civil Court's jurisdiction to entertain the civil suit filed by the appellant/plaintiff.

5. In conclusion, the court directed the trial court to proceed with the suit and any related applications in accordance with the law, emphasizing that the plaintiff's remedy does not lie under section 111-A of the Companies Act, thereby confirming the jurisdiction of the Civil Court in the matter.