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TMI Blog2020 (9) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... NEPC INDIA LTD.) AND OTHERS [ 2019 (2) TMI 971 - SUPREME COURT] that the scope of Section 430 is vast, and jurisdiction of the civil court is completely barred when the power to adjudicate vests in the Tribunal. As has been held in VIJI JOSEPH VERSUS P. CHANDER, ESWARAN ANNAMALAI, THE PRESIDENCY CLUB, , M/S P. SRIRAM ASSOCIATES, , M/S NSDL LIMITED,, INTEGRATE REGISTRY MANAGEMENT SERVICES PVT. LTD., TARUN KUMAR BAGGA, K. GOPAL, T.K. SRINIVASAN, SANKARAIAH, CHIRAG BATAVIA, CHARI RAMESH, SANJAI SHANKAR, DR. S. RAMACHANDRAN, RAMESH JAGTIANI AND THE PRESIDENCY CLUB, REP., BY ITS HONY. SECRETARY VERSUS P. CHANDER, ESWARAN ANNAMALAI [ 2019 (12) TMI 395 - MADRAS HIGH COURT] , the issue of election to the Board of Directors would be amenable to jurisdiction of the NCLT. The issue is the same in the present suit. Likewise, the lis and grievances raised in the suit can be agitated only before the NCLT. A civil court would have no jurisdiction. As far as the specific allegation apropos the manner in which the Ombudsman was appointed are concerned, it too, is an issue which will come within the ambit of Tribunal i.e. appointment of people who would conduct the affairs of the company/th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar placed on civil courts by section 430 of the Companies Act, 2013. The appellant contends that the suit is not maintainable before a civil court because of the said statutory bar. Instead by simultaneous conferment of jurisdiction to deal with such issues in favour of the National Company Law Tribunal (NCLT), the lis and the grievances raised in the suit can be adjudicated only by the NCLT. 3. In this regard, the impugned order has reasoned as under: . 7.11 The next limb of arguments regarding exclusion of jurisdiction of civil court is pertaining to Section 430 and other relevant provisions of Companies Act, 2013. It was argued on behalf of the defendants that the NCLT NCALT have all the powers to deal with the kind of issues raised by the plaintiffs. In this regard reliance is placed upon the Judgment T.P Daver Vs. Lodge Victoria No. 363, S.C. Belgaum 1963 AIR II44. In reply, the plaintiffs relied upon the Judgment Jai Kumar Arya Ors. Vs. Chhaya Devi Anr. 2017 SCC Online Delhi 11436 FAQ (OS) 253/17, wherein it was held that where the provisions of statute are violated, the parties can approach the civil courts. It was argued on behalf of the plaintiff that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 13.12.2019, reappointing the unnamed Director retiring by rotation as being beyond the scope and authority of the Defendants and being in violation of Article 17(2), (3) of the Article of Association and Section 152(6) of the Companies Act is unauthorized, illegal null and void. 242(2)(a) the regulation of conduct of affairs of the company in future; 245. (1) Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders, namely:- (a) to restrain the company from committing an act which is ultra vires the articles or memorandum of the company; (b) to restrain the company from committing breach of any provision of the company s memorandum or articles; (c) to declare a resolution altering the memorandum or articles of the company as v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. 242 (4) (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company s affairs upon such terms and conditions as appear to it to be just and equitable. 245 (1) (b)(c)(d) (b) to restrain the company from committing breach of any provision of the company s memorandum or articles; (c) to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by mis-statement to the members or depositors; (d) to restrain the company and its directors from acting on such resolution; 243 (1)(A) The person who is not a fit and proper person pursuant to sub-section (4A) of section 242 shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the said decision: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d management of any company.] 243 (1)(A) The person who is not a fit and proper person pursuant to sub-section (4A) of section 242 shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the said decision: Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years. (vii) Pass a decree of mandatory injunction directing the Defendants to immediately held the election for the post of President, Vice President and two directors as compulsorily required under Article 17(9)(a) of the Article of Association strictly in compliance with the Constitution of the DDCA and the provisions of the Companies Act, 2013. 245. (1) Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3221/2020. On 28.02.2020 W.P.(C) 1878/2020, was dismissed as withdrawn with liberty to the parties to put their grievances before the NCLT instead. Those petitioners have filed their petitions before the NCLT where the identical issues and grievances -- regarding the aforesaid AGM, elections, etc. are pending adjudication. 6. The appellant contends that sections 430, 241, 242, and 244 of the Companies Act are the relevant provision which cover the lis. They are as under: 430. Civil court not to have jurisdiction. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate. The effect of the aforesaid provision is that in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts shares by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both. 244. Right to apply under section 241 (1) The following members of a company shall have the right to apply under section 241, namely:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the appellants to remedy before the NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today. 8. The appellant also relies upon the judgment in SAS Hospitality Pvt. Ltd. Vs Surya Constructions Pvt. Ltd. 2018 SCC Online Del 11909 : . 10. Before going into the question as to whether this Court has the jurisdiction to entertain and try the present suit and grant reliefs prayed for, it is necessary to analyze the scheme of the Companies Act, 2013, along with the constitution of the NCLT. The NCLT has been vested with powers that are far reaching in respect of management and administration of companies. The said powers of the NCLT include powers as broad as regulation of conduct of affairs of the company under Section 242(2)(a), as also various other specific powers. NCLT is a tribunal which has been constituted to have exclusive jurisdiction in the conduct of affairs of a company and its powers can be contrasted with that of the CLB under the unamended Companies Act, 1956. 11. In the 2013 Act, Sections 407 onwards deal with the constitution of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal. 15. 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 in the present case would be empowered to determine that the allotment of shares in favour of the Defendant Nos.5 to 9 was not done in accordance with the procedure prescribed under Section 62 of the 2013 Act. The NCLT is also empowered to determine as to whether rectification of the register is required to be carried out owing to such allotment, or cancellation of allotment ordered, if any. The NCLT can also determine if in the interregnum, the Defendant Nos.5 to 9 ought to exercise any voting rights. The NCLT would be empowered to pass any such orders as it thinks fit, for the smooth conduct of the affairs of the company, which would include an injunction order protecting the assets of the Defendant No.1 Company. The NCLT would also be empowered to oversee and supervise the working of the company, and also appoint such persons as it may deem necessary to regulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not. (3) Challenge to the provisions of the particular Act as ultra vires cannot be brought before Tribunals constituted under that Act. Even the High Court cannot go into that question on a revision or reference from the decision of the Tribunals. (4) When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari may include a direction for refund if the claim is clearly within the time prescribed by the Limitation Act but it is not a compulsory remedy to replace a suit. (5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegality collected a suit lies. (6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case the scheme of the particular Act must be examined beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while in SAS Hospitality Pvt. Ltd. vs. Surya Constructions Pvt. Ltd. (supra), this Court had referred to Jai Kumar Arya was distinguished, the latter was a case of calling for the meeting of Board of Directors and appointment of a director, whereas SAS Hospitality Pvt. Ltd. dealt with allotment of shares. Therefore, he submits that the suit is maintainable. 12. Mr. Kirti Uppal, the learned Advocate, submits that Section 463 grants power to civil courts to grant relief in certain cases. He submits that some of the parties now supporting the appellant, were supporting the plaintiffs before the learned trial court; their bonafides are suspect; their locus standi to be parties in this appeal is questionable. He contends that there is an issue of forgery regarding the declaration form of one of elected directors, and this issue should be determined first. He further submits that under Article 17(9)(a) of the Articles of Association, 45 days notice was necessary before the BOD/Apex Council elections could have been conducted. He contends that the President of the appellant resigned on 26.11.2019, the elections were held earlier than the said expiry of 45 days i.e. after mere 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The issue to be determined is: whether the NCLT has the exclusive jurisdiction to adjudicate upon them. The preliminary question of jurisdiction of the civil court to entertain the suit may is to be determined. Therefore, at this stage, would not like to comment on the said application and the relief sought therein. 15. The appellant contends that: i) the trial court erred in not determining first, its jurisdiction to entertain the suit, ii) sections 241, 242 and 244 of the Companies Act, deal with all grievances raised in the suit, iii) the powers of the Tribunal under those provisions are sufficient, and iv) section 430 specifically ousts the jurisdiction of the civil courts apropos the matter with respect to such cases for which powers have been specifically conferred upon the Tribunal. The appellant has relied upon the decision of the Madras High Court in Viji Joseph v. P. Chander 2019 SCC OnLine Mad 10424 , which was examining an election dispute under Section 20 of the Companies (Management and Administration) Rules, 2014, involving the maintainability of the election of the Board of Directors through electronic means. After analyzing section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. In our considered view, the answer will have to be in the negative. Section 242(h) of the Act cannot be read in isolation. When a power is given to exercise to act, it has to be related to the core of the section, which provided for such an exercise. In our considered view, the learned single Judge has not considered the scope and object behind Sections 241 and 243 of the Act. 17. We may also note that Section 242(k) of the Act also gives a larger power to the tribunal in appointing such number of persons as Directors. Therefore, the power of the Tribunal in giving effect to an order passed on a complaint under Section 241 of the Act is quite exhaustive, keeping in mind the interest of the company. After all, every provision of a statute has to be given its meaning and therefore, can never be ignored. .. 23. Section 430 of the Act provides for an absolute bar to a Civil Court to entertain any suit or proceedings, which the Tribunal is empowered to do so under the Act. This provision starts with a negative covenant and thus, makes the intention of the legislature very clear. The object is to decide the disputes of the company. This section gives power to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has been conferred on the NCLT, the jurisdiction of the civil court is completely barred. 6. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and CA 1965-66/20143, the power would be vested with the National Company Law Tribunal (NCLT) under Section 39 of the said Act. We are conscious of the fact that in the present case, the cause of action has arisen at a stage prior to this enactment. However, we are of the view that relegating the parties to civil suit now would not be the appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded. 7. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before the NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today. 38. The decision of the Apex Court referred above clearly spells out the scope of Section 430 (emphasis supplied) 17. Viji Joseph, discusses the expanse of s.430, while relying on Shashi Prakash Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs. (3) Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the 'just and equitable' rules, those facts must be relevant-to disclose also that the making of a winding up order would unfairly prejudice the minority members qua shareholders. (4) Although the word 'oppressive' is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are 'treating the company and its affairs as if they were their own property' to the prejudice of the minority shareholders-and in which just and equitable grounds would exist for the making of a winding up order.... but in which the 'alternative' remedy provided by S. 210 by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority. (5) The power conferred on the Court to grant a remedy in an appropriate case app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is almost in the same words as s. 210 of the English Act, and the question in each case is http://www.judis.nic.in whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of s. 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecifically conferred powers to address grievances relating to the affairs of the company, which may be prejudicial or oppressive to any member of the company, or for issues of appointment of directors. The appointment of an Ombudsman, would also form a part of the conduct and management of the affairs of the company. The Supreme Court has held in Shashi Prakash Khemka that the scope of Section 430 is vast, and jurisdiction of the civil court is completely barred when the power to adjudicate vests in the Tribunal. 21. As has been held in Viji Joseph, the issue of election to the Board of Directors would be amenable to jurisdiction of the NCLT. The issue is the same in the present suit. Likewise, the lis and grievances raised in the suit can be agitated only before the NCLT. A civil court would have no jurisdiction. As far as the specific allegation apropos the manner in which the Ombudsman was appointed are concerned, it too, is an issue which will come within the ambit of Tribunal i.e. appointment of people who would conduct the affairs of the company/the management. The video recording of the manner of appointments at the AGM in question, could well be examined by the NCLT. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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