2025 (4) TMI 1019 - HC - Companies Law

Oppression and mismamangement - Maintainability of suit - wrongfully continuing as members of the Executive Committee and are illegally occupying management positions - whether this Court has the jurisdiction to entertain the suit in light of provisions of Section 430 of the 2013 Act? - whether the plaint can be rejected at the threshold in the absence of a formal application under Order VII Rule 11 CPC? - HELD THAT - There is merit in the contention of Defendant No. 1 that under Order VII Rule 11 (d) of CPC a plaint shall be rejected where the suit appears from the statement in the plaint to be barred by law and Court need not wait for the Defendant to appear on issuing summons and/or on appearance of the Defendant to file a formal application for rejection of plaint. In Sopan Sukhdeo Sable 2004 (1) TMI 726 - SUPREME COURT the Supreme Court held that Rule 11 of Order VII CPC lays down an independent remedy made available to the Defendant to challenge the maintainability of the suit itself irrespective of his right to contest the same on merits. The law ostensibly does not contemplate any stage when the objection can be raised and also does not say in express terms about the filing of a written statement. In Patil Automation Private Limited 2022 (8) TMI 1494 - SUPREME COURT the Supreme Court held that Order VII Rule 11 CPC does not provide that the Court is to discharge its duty of rejecting the plaint only on an application. The Rule is in fact silent about any such requirement. Since summon is to be issued in a duly instituted suit in a case where plaint is barred under Rule 11 (d) the stage begins at that time when Court can reject the plaint. Thus there can be no debate that at the threshold itself the Court can reject a plaint where it is barred on account of any infirmity or disability under Rule 11 of Order VII CPC and as observed by the Supreme Court it is in fact that the duty and obligation of the Court to examine if the plaint has any infirmity based on the averments in the plaint before issuing summons and therefore there is no requirement of waiting for a formal application under Order VII Rule 11 CPC in that event and contention of the Plaintiffs to this extent merits rejection. The inevitable conclusion is that Section 430 of the 2013 Act bars the jurisdiction of the Civil Court in matters falling in the domain of NCLT which it is empowered to adjudicate under different provisions of the Act and these powers are wider and broader than the powers of the Civil Court under Section 9 CPC being a specialised Tribunal created for the purpose of regulating adjudication of the affairs of the companies expeditiously. Conclusion - i) The Civil Court lacks jurisdiction to entertain the suit due to the bar under Section 430 of the Companies Act 2013. ii) The plaint is liable to be rejected at the threshold under Order VII Rule 11(d) CPC as the suit is barred by law. The suit is not maintainable as the remedy of the Plaintiffs lies in approaching NCLT. Accordingly the plaint is rejected leaving the Plaintiffs to avail their remedies in accordance with law before the NCLT making it clear that this Court has neither entered into nor expressed any opinion on the merits of the case.

Summary

The core legal questions considered in this judgment are:

1. Whether the Civil Court has jurisdiction to entertain the suit filed by Plaintiffs against Defendants concerning alleged mismanagement, oppression, and unauthorized acts related to the affairs of a Section 8 company governed by the Companies Act, 2013.

2. Whether the suit is barred by the express provision of Section 430 of the Companies Act, 2013, which excludes Civil Court jurisdiction in matters falling within the jurisdiction of the National Company Law Tribunal (NCLT).

3. Whether the plaint can be rejected at the threshold under Order VII Rule 11(d) of the Code of Civil Procedure (CPC) on the ground that the suit is barred by law, without waiting for a formal application from the Defendants.

4. Whether the Plaintiffs, who do not meet the eligibility threshold under Section 244 of the Companies Act, 2013 to file an application under Section 241 before the NCLT, can maintain a suit in the Civil Court as an alternative remedy.

5. The scope and applicability of Sections 241, 242, and 244 of the Companies Act, 2013, regarding oppression and mismanagement complaints and the powers conferred upon the NCLT.

6. The interpretation and application of the proviso to Section 244 allowing the NCLT to waive eligibility requirements and the implications of past NCLT orders declining such waivers.

7. The interplay between the specialized jurisdiction of the NCLT and the general jurisdiction of Civil Courts, including principles governing exclusion of jurisdiction.

Issue-wise Detailed Analysis:

1. Jurisdiction of Civil Court vs. NCLT under Section 430 of the Companies Act, 2013

Relevant Legal Framework and Precedents: Section 430 of the Companies Act, 2013 provides an express bar on Civil Courts entertaining suits or proceedings in respect of any matter which the NCLT or Appellate Tribunal is empowered to determine. The Supreme Court judgments in Union of India v. R. Gandhi and Madras Bar Association v. Union of India uphold the constitutional validity and broad powers of the NCLT and NCLAT, emphasizing their specialized jurisdiction for speedy and effective company law dispute resolution. Co-ordinate Bench decisions of the Delhi High Court in SAS Hospitality Pvt. Ltd. and Delhi & District Cricket Association reiterate that NCLT's jurisdiction is exclusive in matters of oppression, mismanagement, and company affairs.

Court's Interpretation and Reasoning: The Court held that the reliefs sought by Plaintiffs, including declarations regarding expiry of office bearers' tenure, misappropriation of assets, unauthorized transactions, and election disputes, squarely fall within the ambit of Sections 241 and 242 of the Companies Act, 2013, which vest exclusive jurisdiction in the NCLT. The Court emphasized that Section 430 imposes an absolute bar on Civil Courts, and the NCLT's powers are broader and more efficacious than those of Civil Courts under Section 9 CPC.

Application of Law to Facts: Since Plaintiffs admit that the disputes relate to oppression and mismanagement covered under Sections 241 and 242, the Court found that jurisdiction lies exclusively with the NCLT. The Court rejected Plaintiffs' contention that Civil Courts have concurrent jurisdiction, holding that Section 430's bar is absolute in such matters.

Treatment of Competing Arguments: Plaintiffs argued that they do not meet the eligibility threshold under Section 244 to approach the NCLT and hence Civil Court jurisdiction should not be barred. The Court rejected this, stating that the remedy lies in seeking waiver of eligibility before the NCLT and not in bypassing the specialized forum by filing a suit. The Court also rejected Plaintiffs' reliance on precedents suggesting concurrent jurisdiction, distinguishing them on facts or legal grounds.

Conclusions: The Civil Court has no jurisdiction to entertain the suit as the subject matter falls within the exclusive domain of the NCLT under the Companies Act, 2013, and Section 430 bars the suit.

2. Maintainability of Suit and Rejection of Plaint under Order VII Rule 11(d) CPC

Relevant Legal Framework and Precedents: Order VII Rule 11(d) CPC mandates rejection of a plaint where the suit is barred by law. The Supreme Court in Sopan Sukhdeo Sable and Patil Automation Private Limited held that the Court has a duty to reject such plaints even suo motu, without waiting for a formal application from the Defendant. The Court must satisfy itself on the face of the plaint that the suit is barred.

Court's Interpretation and Reasoning: The Court found that the suit is barred under Section 430 of the Companies Act, 2013, which is a statutory bar. Therefore, the plaint is liable to be rejected at the threshold itself. The Court observed that it need not wait for the Defendant's appearance or a formal rejection application.

Application of Law to Facts: The plaint clearly disclosed that the reliefs sought fall within the jurisdiction of the NCLT and are barred by Section 430. Hence, the Court exercised its power under Order VII Rule 11(d) to reject the plaint.

Conclusions: The plaint is rejected at the threshold as the suit is barred by law under Section 430 of the Companies Act, 2013.

3. Eligibility Threshold under Section 244 and Waiver Provision

Relevant Legal Framework and Precedents: Section 244(1)(a) requires that for companies with share capital, at least 100 members or one-tenth of total members must join to file an application under Section 241. For companies without share capital, one-fifth of members are required. The proviso to Section 244 permits the NCLT to waive these requirements on application. The Division Bench of the Calcutta High Court in Eastern Indian Motion Picture Association held that in the absence of waiver, the remedy before NCLT is unavailable, and Plaintiffs may resort to Civil Courts.

Court's Interpretation and Reasoning: The Court rejected Plaintiffs' argument that the suit is maintainable because they do not meet the threshold and waiver is unlikely to be granted. The Court held that the statutory remedy lies in approaching the NCLT and seeking waiver, not in filing a suit. The Court refused to pre-judge the outcome of any waiver application or rely on past NCLT orders declining waiver. The Court emphasized that the bar under Section 430 applies regardless of the Plaintiffs' eligibility unless a waiver is granted.

Application of Law to Facts: Plaintiffs filed suit despite admitting that the reliefs fall within Sections 241 and 242 and that they do not meet the threshold under Section 244. The Court held that Plaintiffs must seek relief before the NCLT and not circumvent the statutory scheme by filing a Civil suit.

Treatment of Competing Arguments: Plaintiffs contended that since NCLT may not grant waiver, Civil Court jurisdiction should not be barred. The Court rejected this speculative approach, noting that if waiver is refused, Plaintiffs have a statutory appeal remedy before NCLAT under Section 421.

Conclusions: The remedy lies exclusively before the NCLT, and Plaintiffs must seek waiver under Section 244 proviso. Civil Court jurisdiction is barred even if Plaintiffs do not meet the eligibility threshold.

4. Scope and Powers of NCLT under Sections 241 and 242

Relevant Legal Framework and Precedents: Section 241 allows members to complain to NCLT about oppression, mismanagement, or prejudicial conduct in company affairs. Section 242 empowers NCLT to pass such orders as it thinks fit, including regulation of company affairs, removal of directors, injunctions, and appointment of persons to manage affairs. The Supreme Court and High Court judgments recognize NCLT as a specialized tribunal with powers wider than Civil Courts.

Court's Interpretation and Reasoning: The Court noted that the reliefs sought by Plaintiffs, including declarations of expiry of office bearers, misappropriation, unauthorized transactions, and injunctions, fall squarely within the ambit of Sections 241 and 242. The Court observed that NCLT's powers are comprehensive and include the ability to regulate the conduct of company affairs and grant effective reliefs that a Civil Court cannot.

Application of Law to Facts: The allegations of oppression and mismanagement, election irregularities, and unauthorized dealings are matters for the NCLT to adjudicate. The Court emphasized that the NCLT's jurisdiction is exclusive and that the specialized nature of the Tribunal is intended to ensure speedy and effective resolution of company disputes.

Conclusions: The issues raised are within the exclusive jurisdiction of the NCLT, which has broad powers to grant reliefs and regulate company affairs.

5. Principles Governing Exclusion of Civil Court Jurisdiction

Relevant Legal Framework and Precedents: The Division Bench in Jai Kumar Arya distilled principles from the Constitution Bench judgment in Dhulabai, holding that exclusion of Civil Court jurisdiction must be strictly construed and is not absolute. Two key tests are whether the Tribunal's decision is final and whether the Tribunal is an efficacious alternative to the Civil Court. Even if these tests are met, Civil Court jurisdiction may continue if the action complained violates the statute.

Court's Interpretation and Reasoning: Applying these tests, the Court found that NCLT's jurisdiction is final and efficacious, with powers to grant comprehensive reliefs. The Plaintiffs' claims fall within the NCLT's domain, and no violation of statute is alleged that would justify Civil Court jurisdiction. The Court held that the bar under Section 430 is absolute in this case.

Application of Law to Facts: The Plaintiffs' claims relate to company affairs and management, which NCLT is empowered to regulate. The Court found no basis to invoke Civil Court jurisdiction.

Conclusions: The bar under Section 430 applies, excluding Civil Court jurisdiction in favor of the NCLT.

6. Treatment of Competing Arguments Regarding Jurisdiction and Remedies

Court's Interpretation and Reasoning: Plaintiffs argued for concurrent jurisdiction or fallback remedies if NCLT denies waiver. The Court rejected these, holding that the statutory scheme contemplates exclusive jurisdiction of NCLT and appellate remedy before NCLAT, not Civil Court. The Court emphasized that the availability of a remedy before NCLT, even if conditional on waiver, excludes Civil Court jurisdiction. The Court also rejected Plaintiffs' attempt to pre-emptively challenge the bar by filing suit.

Conclusions: Plaintiffs must exhaust remedies before NCLT and NCLAT; Civil Court jurisdiction is barred.

7. Allegations of Oppression and Mismanagement and Their Legal Characterization

Relevant Legal Framework and Precedents: The Court referred to the landmark Supreme Court decision in Shanti Prasad Jain v. Kalinga Tubes Ltd., which defines oppression as conduct that is burdensome, harsh, wrongful, and a visible departure from fair dealing in company affairs, prejudicing minority members. The Court also cited English precedents clarifying that oppression involves abuse of majority power and impairment of confidence in company management.

Court's Interpretation and Reasoning: The Court recognized that Plaintiffs' allegations of unauthorized continuation of office bearers, misappropriation, diversion of funds, impersonation, and unauthorized dealings with third parties constitute claims of oppression and mismanagement. These fall precisely within the scope of Sections 241 and 242, reinforcing the exclusive jurisdiction of the NCLT.

Conclusions: The nature of the dispute is oppression and mismanagement, which must be adjudicated by the NCLT.

Significant Holdings:

"The bar contained in Section 430 of the 2013 Act is in respect of entertaining 'any suit', or 'any proceedings' which the NCLT is 'empowered to determine'. The NCLT... is a specialised Tribunal constituted for the purpose of speedier and effective regulation of the affairs of the companies."

"Order VII Rule 11 CPC casts a duty on the Court to perform its obligations in rejecting the plaint when the same is unsustainable on account of disability under any of the categories of Rule 11, without intervention of the Defendant."

"The remedy of the Plaintiffs is to apply before NCLT under Section 241 and seek a waiver under the proviso to Section 244(1)(a) and (b). The contention that precedents reflect that NCLT ordinarily or invariably declines to grant waiver can be no argument in the teeth of a statutory provision."

"Sections 241 and 242 of the Companies Act, 2013, deal with all issues which have been raised in the suit. The NCLT has been specifically conferred powers to address grievances relating to the affairs of the company, which may be prejudicial or oppressive to any member or members."

"The exclusion of jurisdiction of civil courts is not readily to be inferred unless the conditions set down in Dhulabai... apply. The primary indicia are (i) whether the decision of the tribunal is attributed finality by the statute; and (ii) whether such tribunal can do what the civil court would be able to do and is, therefore, an efficacious alternative to the civil court."

"The allegations of misappropriation, diversion of funds, wrongful financial exploitation, impersonation, and unauthorized dealings relate to oppression and mismanagement and clearly fall within the scope of NCLT's jurisdiction thus barring the jurisdiction of this Court."

Final determinations on each issue:

- The Civil Court lacks jurisdiction to entertain the suit due to the bar under Section 430 of the Companies Act, 2013.

- The plaint is liable to be rejected at the threshold under Order VII Rule 11(d) CPC as the suit is barred by law.

- Plaintiffs cannot circumvent the eligibility threshold under Section 244 by filing a suit; they must seek waiver before the NCLT.

- The NCLT has exclusive and comprehensive jurisdiction to adjudicate the allegations of oppression, mismanagement, and related company affairs raised in the suit.

- The statutory scheme provides an efficacious alternative remedy through the NCLT and appellate remedy before NCLAT, excluding Civil Court jurisdiction.

- The Court has not expressed any opinion on the merits of the case, leaving Plaintiffs to avail their remedies before the NCLT in accordance with law.