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TMI Blog2021 (1) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... y inferred and the rule of construction being that every presumption should be made in favour of his existence rather than exclusion of the jurisdiction of the Civil Court - Section 397 398 of the Companies Act provides a remedy which is of preventive in nature so as to bring an end to oppression and mismanagement on the part of the controlling shareholders but does not in express terms take away the power of the Civil Court to declare a resolution to be ultra vires to the memorandum and article of association. The subsequent events can be taken note of if the original proceeding has become infructuous as it would be a futile exercise to allow such suit to continue. It is based on the legal maxim ex debito justitiae i.e. it is a duty of the Court to take such action which is necessary in the interest of Justice. Every facts germinated after the litigation having a substantial nexus and/or bearing on the relief claimed in the suit may be taken into consideration for ends of Justice. Section 242 of the Companies Act which provides for the power of the Tribunal contemplates an action relating to the affairs of the company which is being conducted in a manner prejudicial or op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent members. Children of the member up to the age of 13 years can utilize the facilities of the Club when accompanied by the parents and between 13 to 21 years, can utilize the facilities independently. Children of the member attaining the age of 21 years may continue to use the facilities of the defendant Club after applying for permanent membership in which case they are issued a Green Card despite the fact that no concept of Green Card is provided in the Articles of Association of the defendant nor does the same appear from the White Paper issued in October, 2014. Defendant No.1 extends the facility of issuing Green Card only to those children who enjoy the facilities of Club while being minors, however, the defendant No.1 denies the said Green Card to those children who did not enjoy the facilities of the Club as minors. According to the plaintiffs denying Green Card to a class of members is acting inequitably and the defendant No.1 seeks to interpret Article 13 (3) (b) only for the benefit of a section of permanent members. 2. In view of the averments as noted above, in the present suit the plaintiffs have inter alia prayed for a decree declaring Clause 13 (3) (b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be ascertained. Referring to the decision in 2015 SCC OnLine Cal. 7078 Royal Calcutta Golf Club vs. Lalit Kumar Jhalaria; it is contended that individual members of a company can sue in a civil court to protect their individual rights. Further, decisions taken by majority members/shareholders though are not ordinarily amenable to be challenged in court however since the actions of the defendant are fundamentally against the Memorandum and Articles of Association, a civil suit would lie. 7. It is stated that a member of a company has two kinds of right i.e. the individual membership rights and the corporate membership rights. The plaintiffs in the present suit have asserted their individual membership rights against the defendants seeking the right under Article (13) (3) (b) to be afforded to all permanent members. Referring to the decision of the High Court of Kerala in AIR 1965 Kerala 68 C.L. Joseph vs. Jos Anr, it is contended that an individual membership right is a right of a member to maintain himself in full membership with all the rights and privileges appertaining to that status. Reliance is placed on the decision of the Division Bench of this Court report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clauses. Thus, clause (m) which is a residuary clause cannot be used to perform the activity which is otherwise prohibited. In Vijay Chhibber Ors. Vs. Delhi Gymkhana Club Ltd., as the suit was based against a show cause notice issued to the member after he had filed complaints against the defendant No.1 company, hence on the facts the court held that the remedy does not lie before the NCLT but in a civil suit. Plaintiffs are members of the defendant No.1 Club and the dispute in a company need not necessarily be of shareholders. Other disputes by the members can also be decided by the NCLT. Though the suit prays for a declaration contrary to the Articles of Association of the defendant No.1 company, there is no averment in the complaint qua the age of the plaintiffs children nor does the complaint note whether the children of the plaintiffs applied when they attained the age of 21 years. 11. It is stated that another suit of a similar nature was filed in this court titled as Alok Mehndiratta Ors. Vs. Delhi Gymkhana Club Ltd. which due to the pecuniary jurisdiction was transferred to Patiala House Courts wherein the learned Additional District Judge held that the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lteration in the Board of Directors, or manager, or in the ownership of the company s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any 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. (2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter. xxxxxxxxxxxx 242. Powers of Tribunal - (1) If, on any application made under section 241, the Tribunal is of the opinion- (a) that the company s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (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. (5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner in which Article 13 (3) (b) of the Articles of Association of the defendant No.1 is to be interpreted resulting in a situation where children of members who use the Club below the age of 21 years not only become dependent members but are given Green Cards as well, and on the basis of the said Green Cards not only they but their spouses and dependents are also permitted to enjoy the facilities of defendant No.1 Club barring category of permanent members whose children did not enjoy the facilities of the Club before the age of 21 years as dependent members. According to the plaintiffs, this interpretation creates an inequitable classification, therefore, the plaintiffs seek the consequential relief. 17. No doubt the Division Bench of Calcutta in Prasanta Kumar Mitra (supra) held that the term including in Section 434 (1) (c) of the Companies Act has to be given a broad interpretation, however, the said interpretation would not include issues which are not within the jurisdiction of the NCLT. Section 434(1)(c) of the Companies Act directs transfer of all cases pending in District Courts and High Court to NCLT, subject to the NCLT having jurisdiction in terms of Section 241 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 169(4) of the Act. Section 169(4), may for ready reference, be reproduced as under: (4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so, - (a) in any notice of the resolution given to the members of the company, state the fact of the representation having been made; and (b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company),and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company's default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting. Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 242, clauses (a) to (g) and (i) to (l) thereof are obviously inapplicable. Clause (h) would, in fact, indicate that the reliefs prayed for in CS (OS) 285/2017 were outside the jurisdiction of the Tribunal, as the said clause empowers the NCLT to pass an order providing for removal of the managing director, manager or any of the directors of the Company. If one were to apply the expression unius est exclusion alterius principle, by inference, it would not be open to the NCLT to adjudicate on the validity of a notice calling for a meeting, of the Board, to decide whether to convene an EGM proposing to remove one of the Directors of the Company. For that reason, such a relief may not, properly, even be sought under clause (m) of Section 242(2), despite the expensive wording of the said clause. That apart, clause (m) of Section 242(2) would, in our opinion, have appropriately to be read ejusdem generis with the preceding clauses of the said subsection, and a species of case which is impliedly excluded from one of the said preceding clauses could not be, by implication, brought into clause (m). Any attempt to do so may amount to doing violence to the legislative intent. 118. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... len and General Mills Co. v. R.L. Kaushik, 1969 (39) Comp Cas 249 (P H) is another case in point. The memorandum and articles of Association of the petitioner Company before the High Court, in that case, provided for retirement of one third of the directors of the company every year. The directors so slated to retire would be those who had held office for the longest period since the last election. The controversy, before the High Court, pertained to the annual general meeting of the company, scheduled to be held on 30th December 1967. The respondent RL Kaushik contended that his name was proposed to be included, in the said meeting, as one of the directors scheduled to retire the rotation, even though, in his submission, he was not so due for retirement. Mr. Kaushik, therefore, filed a suit in the Court of the Subordinate Judge, for a declaration that he was the Director of the company and that the election, held on 30th December 1967 was illegal, ultra vires and void. Consequential relief, by way of permanent injunction restraining the defendants from interfering with the management of the company, or for allowing Mr. Kaushik to act as director, was also sought. An application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be held to be competent. 19. The Calcutta High Court in Royal Calcutta Golf Club (supra) held:- 23. The reference in this regard can be made to a Division Bench judgment of this Court in case of Asansol Electric Supply Co. (supra) wherein it is held: 12. The law on the point has been clearly laid down in a recent decision of the court of appeal in (4) Edwards v. Halliwell, 1950 2 All. Er 1064. In that case, it has been held by Jenkins, L.J. that the cases falling within the general ambit of the rule in (1) Foss v. Harbottle are subject to certain exceptions, namely, (1) where the act complained of is wholly ultra vires the company or association, (2) when the act complained of is one which can validly be done or sanctioned, not by a simple majority of the members of the company or association, but only by some special majority, and (3) when the individual members sue not in the right of the company but in their own right to protect from invasion their own individual rights as members. 13. The exception which has been made to the rule in (1) Foss v. Harbottle in the English decisions referred to above has been adopted by the courts in India. In (5) Ramki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the majority. The Court interferes in cases of an ultra vires act, because it is not an act within the constitution. In the other class of cases the Court interferes upon a different basis. 25. The suit at the instance of an individual shareholder, alleging the infringement of a right for an action and the majority shareholders being opposed to the memorandum and article of association, cannot be said to be an imperfect suit liable to fail on the parameters of Order 7 Rule 11 of the Code. Mere reference of more than 3100 members does not, ipso facto, raise a presumption that the suit is not maintainable in absence of any leave under Order 1 Rule 8 of the Code. Section 9 of the Code of Civil Procedure postulates that the Civil Courts have jurisdiction to try all suits of civil nature unless there is an express or implied bar. It is no longer res integra that such exclusion should not be readily inferred and the rule of construction being that every presumption should be made in favour of his existence rather than exclusion of the jurisdiction of the Civil Court. 26. Section 397 398 of the Companies Act provides a remedy which is of preventive in nature so as to bring an en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT has the jurisdiction. In Jai Kumar Arya (supra), the Court was concerned with the power of removal of directors, which is distinct from the disputes involved in the present case. However, by applying the tests laid down therein, it is clear in the facts of this case that involving issues relating to allotment of share capital, alteration and rectification of the register of members, the NCLT is empowered to decide -leading to the conclusion that this Court has no jurisdiction. 21. This Court in DDCA vs. Vinod Tihara (supra) held: 67. As regards the contention of the Appellant that the relief sought by the Respondent no.1 as sought through the suit CS No.5963/18 could not be granted in view of Companies Act, 2013, it is apparent that the provisions of Section 430 of the Companies Act, 2013 are prima facie not an embargo to the invocation of the jurisdiction of the Civil Court in terms of Section 9 of the CPC, 1908, as amended, for as held in Mumbai Cricket Association Bye-laws Rule 31(r) (supra), vide para 30 thereof the powers of the Civil Court are unlimited especially where the aspect of a formality of show cause notice is to be tested. The observations in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicate the present suit. 15. Reference may be had to Section 430 of the Companies Act, 2013. The said section 430 of the Companies Act, 2013 reads as follows: Section 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 Tribunal. 16. As per the said provision, in matters for which the tribunal or appellate tribunal has power to adjudicate the case, no suit or proceedings would lie. 17. The learned senior counsel for the defendants have also relied upon the judgment of the Supreme Court in the case of LIC of India v. Escorts Ltd., (supra) to support his plea that a civil court cannot injunct a share holder to call an AGM. The learned senior counsel for the plaintiffs in support of his contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site Form DlR12 with the office of the Registrar of Companies in respect of the aforesaid appointment and to do all such other acts, deeds and things as may be considered necessary or incidental thereto. 3. RESOLVED THAT in pursuance of Section 169 of the Companies Act, 2013, Mr.Dinesh Gupta be and is hereby removed as the Director of the Company with immediate effect. RESOLVED FURTHER THAT Ms. Uma Sharma, the present Company Secretary or any of the Directors or the Company Secretary at the relevant time, be and are hereby directed and authorised singly and severally to file the requisite Form DlR12 with the office of the Registrar of Companies in respect of the aforesaid appointment and to do all such other acts, deeds and things as may be considered necessary or incidental thereto. 4. RESOLVED THAT in pursuance of Section 169 of the Companies Act, 2013, Mr.Shreyansh Gupta be and is hereby removed as the Director of the Company with immediate effect. RESOLVED FURTHER THAT Ms. Uma Sharma, the present Company Secretary or any of the Directors or the Company Secretary at the relevant time, be and are hereby directed and authorised singly and severally to f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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