2024 (6) TMI 963 - HC - Companies Law

Jurisdiction of Civil Court vs. NCLT/NCLAT - Dispute related to Transfer of or title of shares - Rejection of plaint under Order VII Rule 11 (a) and (d) read with Section 151 of The Code of Civil Procedure, 1908 - sole reason for rejection of the plaint was that Clause 8 of the SPA operates as a bar on the City Civil Court entertaining the suit - Section 430 read with Sections 58 and 59 of The Companies Act, 2013. Whether the appellant/plaintiff could have been ousted from the domain of the City Civil Court, Hyderabad by reason of Section 430 read with Sections 58 and 59 of The Companies Act, 2013? - HELD THAT - Clause 8 of the SPA indicates that the parties agreed to refer any dispute arising from the SPA with regard to transfer of shares from the appellant to the respondents to arbitration. It was hence open to the Trial Court to take the point of arbitrability of the dispute and pass necessary orders consequent to such finding. The issue of arbitrability of the dispute is relevant since counsel for the appellant proposes to file an appropriate application for appointment of Arbitrator under Section 11 of The Arbitration and Conciliation Act, 1996. The objection raised on behalf of the respondents cannot be accepted since the question whether all the parties to the SPA are before the Court in the application filed under Section 11 of The Arbitration and Conciliation Act, 1996 for appointment of arbitrator may only be gone into at the time of hearing of the application as and when it is filed. It would be unwarranted to limit the options available to the appellant at this stage of the proceedings - the appropriate Court will decide the fate of such application as and when the appellant takes necessary steps in terms thereto. Applicability of Section 430 read with Sections 58 and 59 of The Companies Act, 2013, to the suit filed by the appellant - HELD THAT - The Trial Court rejected the plaint under Order VII Rule 11 (a) and (d) read with Section 151 of The Civil Procedure Code, 1908, which provides for rejection of the plaint where the suit appears from the statement in the plaint to be barred by any law. The Trial Court relied on Clause 8 of the SPA to hold that the Civil Court does not have any jurisdiction and that the parties must therefore be relegated to arbitration - the view taken by the Trial Court cannot be agreed upon. The NCLT is certainly not the proper forum to adjudicate on disputes of individual members with regard to transfer of or title to the shares. Section 430 or Sections 58 and 59 of The Companies Act, 2013, will hence not operate as a bar to the suit filed by the appellant in any manner howsoever. In the present case, the stand taken on behalf of the respondents amounts to ousting the appellant from all available and competent fora. The Court certainly cannot be a mute spectator to the conduct of the respondent. The impugned order dated 09.01.2023 is set aside since it is found that Section 430 read with Sections 58 and 59 of The Companies Act, 2013, have no application to the statements in the plaint and the relief sought for therein - application allowed.

Summary

Issues:
1. Jurisdiction of Civil Court vs. NCLT/NCLAT
2. Applicability of Section 430, Section 58, and Section 59 of The Companies Act, 2013
3. Rejection of plaint based on Clause 8 of the SPA

Analysis:

1. The appeal dealt with the rejection of a plaint by the Trial Court under Order VII Rule 11 of The Code of Civil Procedure, 1908, based on an application filed by the defendants invoking Section 430 read with Sections 58 and 59 of The Companies Act, 2013. The primary contention was whether the Civil Court could adjudicate on the matter or if it fell within the jurisdiction of NCLT/NCLAT. The appellant argued that the NCLT/NCLAT did not have jurisdiction over the issues raised in the suit, emphasizing that the dispute was within the domain of a Civil Court.

2. The Trial Court relied on Clause 8 of the Share Purchase Agreement (SPA) to reject the plaint, citing that the dispute should be referred to arbitration. However, the High Court disagreed with this view, emphasizing that the provisions of Section 430 of The Companies Act, 2013, were enacted to delineate the jurisdictional boundaries between Civil Courts and NCLTs/NCLATs. The Court analyzed the provisions of Section 58 and Section 59 of the Companies Act, 2013, and concluded that the NCLT was not the appropriate forum to decide on individual rights and disputes related to the transfer or title of shares.

3. The High Court highlighted that the Trial Court erred in rejecting the plaint solely based on Section 430 read with Sections 58 and 59 of The Companies Act, 2013. It emphasized that the Trial Court could have referred the dispute to arbitration as per Clause 8 of the SPA but should not have mixed up remedies under The Arbitration and Conciliation Act, 1996, and The Companies Act, 2013. The Court held that the rejection of the plaint based on Section 430 and related provisions would leave the appellant without a remedy, which was not permissible. The impugned order was set aside, and the appeal was allowed, emphasizing that the provisions of The Companies Act, 2013, did not bar the suit filed by the appellant.

4. The judgment referenced similar cases to support its findings, such as Shazia Rehman v. Anwar Elahi and Phool Chand Gupta v. Mukesh Jaiswal, which highlighted the limitations of NCLT jurisdiction in certain disputes. The Court concluded that the Trial Court's decision to reject the plaint was erroneous and that the appellant was entitled to pursue the suit in the Civil Court without being ousted from available legal avenues.

5. Ultimately, the High Court allowed the appeal, set aside the impugned order, and disposed of the case in favor of the appellant, emphasizing that the provisions of The Companies Act, 2013, did not preclude the appellant from seeking relief in the Civil Court for the issues raised in the suit.