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TMI Blog2025 (4) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... sent suit has been filed by the Plaintiffs seeking the following reliefs against Defendants No. 2 to 10: "1. Declare that Defendant Nos. 2 to 10 have forfeited their authority and ceased to represent Roshanara Club Limited (RCL) in any capacity, including as Secretary, General Secretary, Director(s), or members of the Executive Committee/Management Committee, by virtue of the expiration of their term of office on 30.09.2023, pursuant to Clause 44 of the Memorandum of Association of RCL., and/or 2. Declare that, with effect from 01.10.2023, Defendant Nos. 2-10 constitute a defunct and dissolved body, having ceased to possess any legal authority or competence to act on behalf of Roshanara Club Limited (RCL), by reason of the expiration of their term of office, and/or 3. Declare that all actions, decisions, and transactions undertaken by Defendant Nos. 2-10 post 01.10.2023, in the name of Roshanara Club Limited, assuming themselves to be members of the Executive/Managing Committee of RCL, are null and void, having been undertaken without authority, and are consequently non-binding and of no legal effect upon RCL, being void ab initio, and/or 4. Declare that, effective 01.10.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al transactions, dealings, and decisions made by the Defendants during their tenure, and/or 13. In the event of finding accounts being irregular or deficient or wrongly kept, then Defendant(s) to be held jointly and severally responsible to bring back the money forthwith, and/or 14. Direct Defendants Nos. 2 to 10 to furnish a detailed, accurate, and transparent inventory of all goods, assets, and properties belonging to Roshanara Club Limited (RCL), as reflected in the books of accounts and physically present on site, from the date they assumed office in the Executive/Management Committee of RCL up to the date of their handing over of charge, and/or 15. In the event that any goods, assets, and properties belonging to Roshanara Club Limited (RCL) are found to be missing, unaccounted for, misappropriated, misused, alienated, or carelessly lost by the Defendant(s), this Hon'ble Court be pleased to direct the Defendant(s) to be held jointly and severally responsible to restore, return, and re-deliver all such goods, assets, and properties to the Club forthwith. 16. Pass a decree of awarding Cost of the present litigation." 2. As per the averments in the plaint, Defendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the judgment of Co-ordinate Bench of this Court in SAS Hospitality Pvt. Ltd. And Another v. Surya Constructions Pvt. Ltd. and Others., 2018 SCC OnLine Del 11909, wherein the plaint was rejected on account of express bar under Section 430 of the 2013 Act, holding that powers of NCLT are broader and wider than what can be exercised by this Court in exercise of civil jurisdiction under Section 9 of CPC. NCLT is a specialised Tribunal constituted for the purpose of speedier and effective regulation of the affairs of the companies. Court, in turn, relied on the judgments of the Supreme Court in Union of India v. R. Gandhi, President, Madras Bar Association, (2010) 11 SCC 1 and Madras Bar Association v. Union of India and Another, (2015) 8 SCC 583. Reliance was also placed on the judgment of the Co-ordinate Bench in Delhi & District Cricket Association v. Sudhir Kumar Aggarwal and Others, 2020 SCC OnLine Del 1223, wherein it was held that NCLT has been specifically conferred power to address grievances relating to affairs of the company, which may be prejudicial or oppressive to any member of the company or issues of appointment of Directors and that Civil Court will have no jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the Plaintiffs submits that the suit is maintainable and summons be issued to the Defendants after registering the plaint as a suit. It was argued that in case of companies governed by provisions of Companies Act, 2013, including RCL which is a Section 8 company, dispute redressal mechanism is provided in Section 241 of the 2013 Act, which enables filing of application to NCLT for relief in cases of oppression etc. and sub-Sections (1) to (3) detail who can apply under the said provision. However, right to apply under Section 241 is not absolute and there is a threshold provided under Section 244 of the 2013 Act. For a company with a share capital, the eligibility to apply arises when there are 100 shareholders or 1/10th strength of total members while for a company not having a share capital, the eligibility requires a strength of not less than 1/5th of the total number of its members. In this light, it was urged that the present suit is filed by five members of RCL out of 4000 members and as Plaintiffs do not meet the threshold of Section 244, suit is maintainable. Moreover, Section 9 of CPC provides that Courts shall have jurisdiction to try all suits of civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Division Bench of the Calcutta High Court in case of Eastern Indian Motion Picture Association and Others v. Milan Bhowmik and Others, 2024 SCC OnLine Cal 1325, where in a similar situation it was held that the learned Single Judge had rightly declined to reject the plaint since the remedy of approaching NCLT is conditional upon grant of application by the Tribunal to waive the eligibility requirement and even if Plaintiffs did approach NCLT, there was no guarantee that the Tribunal would allow the application and in the event the application was rejected, Plaintiffs will have to approach the Civil Court. It was observed that Plaintiffs were justified in taking recourse to suit remedy which existed, rather than one which did not exist but could come into existence on fulfilment of uncertain conditions. 10. On the judgments cited by learned Senior Counsel on behalf of Defendant No. 1, learned counsel for the Plaintiffs argued that as to the legal proposition laid down in SAS Hospitality Pvt. Ltd. (supra), there was no quarrel that there is a bar in Section 430 in respect of entertaining any suit or proceedings which NCLT is empowered to determine and the powers are br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 241, the same shall be declined by NCLT. Assuming for the sake of argument that NCLT rejects the application for waiver under proviso to Section 244 (1) (b) of the 2013 Act, the remedy is not to approach the Civil Court but to file a statutory apply under Section 421 of the 2013 Act before National Company Law Appellate Tribunal ('NCLAT'). 13. Heard learned counsel for the Plaintiffs, learned Senior Counsel for Defendant No. 1 and learned counsels for Defendnant No. 14 and examined their rival contentions. 14. In view of the preliminary objection raised by Defendant No. 1 to the maintainability of the suit, the question that needs to be considered is whether this Court has the jurisdiction to entertain the suit, in light of provisions of Section 430 of the 2013 Act. A connected issue was also raised and needs determination as to whether the plaint can be rejected at the threshold in the absence of a formal application under Order VII Rule 11 CPC. 15. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be exercised suo motu. (See in this regard, the judgment of this Court in Madiraju Venkata Ramana Raju [Madiraju Venkata Ramana Raju v. Peddireddigari Ramachandra Reddy, (2018) 14 SCC 1].)" 16. In light of the binding dictum of the Supreme Court in the aforementioned judgments, 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. 17. Coming to the only other issue of bar under Section 430 of the 2013 Act to entertain the suit, I may first examine the provision which is extracted hereunder, for ready reference:- "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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction of Civil Court will be excluded by virtue of Section 430 of the 2013 Act. It was also observed that powers of NCLT are extremely broad and are more than what a Civil Court can do under Section 9 CPC. NCLT is a specialised Tribunal constituted for speedier and effective regulation of the affairs of the company. The Court in turn relied on the observations of the Supreme Court in R. Gandhi, President, Madras Bar Association (supra) and Madras Bar Association (supra), in the context of the creation of the NCLT and NCLAT by a specific amendment in the law. Relevant passages of the judgment are as follows:- "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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that there cannot be 'whole-sale transfer of powers' is misconceived. It is nobody's case that the entire functioning of courts in the country is transferred to Tribunals. The competence of the Parliament to make a law creating Tribunals to deal with disputes arising under or relating to a particular statute or statutes cannot be disputed. When a Tribunal is constituted under the Companies Act, empowered to deal with disputes arising under the said Act and the statute substitutes the word 'Tribunal' in place of 'High Court' necessarily there will be 'whole-sale transfer' of company law matters to the Tribunals. It is an inevitable consequence of creation of Tribunal, for such disputes, and will no way affect the validity of the law creating the Tribunal." 18. In Madras Bar Association (supra), relying upon the decision in R. Gandhi (supra), the Supreme Court observed as under: "11. First of all the creation of Constitution of NCLAT has been specifically upheld in 2010 judgment. It cannot be denied that this very Petitioner had specifically questioned the Constitutional validity of NCLAT in the earlier writ petition and even advanced the arguments on this very issue. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should normally have only judicial members. Only where the exercise of jurisdiction involves inquiry and decisions into technical or special aspects, where presence of technical members will be useful and necessary, Tribunals should have technical members. Indiscriminate appointment of technical members in all Tribunals will dilute and adversely affect the independence of the Judiciary. (d) The Legislature can re-organize the jurisdictions of Judicial Tribunals. For example, it can provide that a specified category of cases tried by a higher court can be tried by a lower court or vice versa (A standard example is the variation of pecuniary limits of courts). Similarly while constituting Tribunals, the Legislature can prescribe the qualifications/eligibility criteria. The same is however subject to Judicial Review. If the court in exercise of judicial review is of the view that such tribunalisation would adversely affect the independence of judiciary or the standards of judiciary, the court may interfere to preserve the independence and standards of judiciary. Such an exercise will be part of the checks and balances measures to maintain the separation of powers and to prevent an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding whether a suit was barred under Section 9 of the CPC: "(1) Where the statute gives a finality to the orders of the special Tribunals the civil courts' jurisdiction must be held to be excluded if there is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory Tribunal has not acted in conformity with the fundamental principles of judicial procedure. (2) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that an order under Section 59 of the 2013 Act has specific consequences for non-compliance. The order is appealable to the appellate tribunal. The Tribunal has to apply the principles of natural justice. Under Section 242 (2)(d) of the 2013 Act, the Tribunal can impose restrictions on the transfer or allotment of the shares of the company. It can also pass an interim order under Section 242 (4) of the 2013 Act. Consequences for non-compliance have also been provided under Section 242(4) of the 2013 Act. The Plaintiffs have a right to apply Section 242 of the 2013 Act as they own 99.96% shareholding which has been diluted to 21.44%. Any member with more than 1/10 of the issued share capital can approach the Tribunal. Thus, even as per Jai Kumar Arya (supra), the order being one, which can be passed under Section 242 of the 2013 Act, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther information or evidence; Rule 47 provides for administration of oath to witnesses; Rule 51 gives power to regulate procedure; Rules 56 and 57 deals with the execution of orders passed by the Tribunal; Rule 58 provides for the effect of non-compliance with orders. Viji Joseph, as mentioned above in paragraph 24, also states that the powers of the Tribunal cannot be termed as 'summary'. As discussed hereinabove, complete jurisdiction has been given to the NCLT to deal with all aspects of issues, as agitated in the suit. xxx xxx xxx 20. What emanates from the preceding arguments and on consideration of the comparative chart hereinabove, is that sections 241, 242 and 244 of the Companies Act deal with all the 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cient, 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 242 and other circumstances pertaining to the case, it concluded that only the Tribunal had powers to deal with the issue raised in the suit and the civil court had no jurisdiction to entertain the suit. 16. An identical issue has been raised in the present case, challenging matters relating to the AGM, the Board of Directors of the appellant company, the appointment of an ombudsman, and other related issues. Sections 242 (1), 242 (2), and 242 (4) confer ample powers upon the Tribunal to deal with the issue raised in the civil suit. Viji Joseph held, inter alia, as under: "14. Section 242 deals with the powers of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. xxx xxx xxx 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 Tribunal to determine, enforce law qua the company for any violation. Law includes any other law also. Therefore, it is certainly a peremptory provision. This provision has to be read along with other provisions in Sections 241, 242 and 424 to 429. 24. The powers of the Tribunal cannot be termed as summary per se. A summary proceedings would come into place when a Court acts upon a common law principle as against a different procedure authorised by law. However, a proceeding cannot be termed as a summary when further procedural strengthening was done by the enactment along with the common law principles. As discussed above, common la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 17. Viji Joseph, discusses the expanse of s. 430, while relying on Shashi Prakash Khemka. It also mentions Jai Kumar Arya, as relied upon by R-1 and R-2 in the present case, but finds it inapplicable. It has also dealt with the expression 'oppression' regarding company affairs, as under: "12. In this connection, it is appropriate to refer the celebrated judgment of the Apex Court in Shanti Prasad Jain v. Kalinga Tubes Ltd., ((1965) 2 SCR 720 dated 14.01.1965), wherein it has been held as under. 15. It gives a right to members of a company who comply with the conditions of S. 399 to apply to the court for relief under s. 402 of the Act or such other reliefs as may be suitable in the circumstances of the case, if the affairs of a company are bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 appears to envisage a reasonably wide discretion vested in the Court in relation to be order sought by a complainer as the appropriate equitable alternative to a winding-up order." 19. In Harmer's case (1), it was held that "the word 'oppressive' meant burdensome, harsh and wrongful". It was also held that "the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression". It was also held that "the result of applications under s. 210 in different cases must depend on the particular facts of each case, the circumstances in which oppr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders, 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 management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a share holder.It is in the light of these principles that we have to consider the facts in this case with reference to s. 397." 18. The learned Senior Advocate for the appellant submits that the Companies Act and the National Company Law Tribunal Rules, 2016, are together a complete code. Ample power has been provided to the NCLT - akin to a civil court - to deal with all issues for which powers have been conferred upon the Tribunal. For instance Rule 11 deals with inherent powers of the NCLT to conduct a full trial, in order to prevent abuse of justice; Rule 34 specifically allows for det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are wide and expansive and cover all cases where the complaint is made alleging mismanagement of the affairs of the company in a manner prejudicial or oppressive to the complainant or the company or any member or members of the company albeit Section 241 (1) (a) limits the applicability to cases falling under Chapter XVI of the Act. Section 241 (1) (b) provides that application can be made only by a member who has a right to apply under Section 244. Section 242 details the powers of NCLT in cases where Section 241 can be invoked. 24. It is relevant to note at this stage that Plaintiffs do not contest the position that the disputes sought to be raised in the suit and/or reliefs claimed are covered under Sections 241 and 242 of the 2013 Act and as rightly flagged by Defendant No. 1, they have so admitted in paragraph 6 of the plaint. Therefore, this issue need not detain this Court and the only issue arising for consideration is whether Plaintiffs can be non-suited and relegated to the jurisdiction of NCLT, when according to them they do not meet the threshold of eligibility provided in Section 244. In a nutshell, contention of the Plaintiffs is that in the absence of meeting the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation.-For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (2) Where any members of a company are entitled to make an application under sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them." 26. 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. By making this submission, Plaintiffs are virtually calling upon the Court to pre-judge the outcome of an application for waiver, if and when filed by the Plaintiffs, which cannot be a yardstick to decide the maintainability of the suit, which cannot be entertained in view of the bar under Section 430, especially, when Plaintiffs admit that the reliefs sought by them pertaining to allegations essentially of oppression and mismanagement fall in the domain and juri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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