Calcutta High Court (Appellete Side)
Santosh Kumar Agarwala & Ors vs Sajjan Kumar Agarwala & Ors on 23 December, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
In the High Court at Calcutta
Civil Appellate jurisdiction
Appellate Side
The Hon'ble Justice Sabyasachi Bhattacharyya
And
The Hon'ble Justice Uday Kumar
F.M.A.T No. 543 of 2023
With
CAN 1 of 2022
With
CAN 2 of 2024
Santosh Kumar Agarwala & Ors.
Vs.
Sajjan Kumar Agarwala & Ors.
For the appellants : Mr. Debnath Ghosh,
Mr. Sarosij Dasgupta,
Mr. Bimalendu Das
For the Respondents No.3 : Mr. Srijib Chakrabarty,
Ms. Oindrila Ghosal
For the Respondent Nos. 12 & 13 : Mr. Sourajit Dasgupta,
Mr. Shomrik Das
For the Respondents Nos. : Mr. Anirban Kar,
6 to 11, 29 & 30 Mr. Munshi Ashiq Elahi
For the Respondent Nos. 17 & 18 : Mr. Biswaroop Mukherjee,
Ms. Shomrita Das
For the Respondent No. 25 : Mr. Partha Pratim Roy,
Mr. Aditya Mondal
Hearing concluded on : 26.11.2024
Judgment on : 23.12.2024
Sabyasachi Bhattacharyya, J.:-
1. The present challenge has been preferred against an order whereby,
while deciding an application of the defendant/respondent no.25 under
2Order VII Rule 11 of the Code of Civil Procedure, the learned Trial
Judge treated the same to be one under Order VII Rule 10 of the Code
and directed return of the plaint to be presented before the appropriate
forum.
2. The appeal arises out of a suit filed by the plaintiffs/appellants inter
alia for declaration that the plaintiff are entitled to 1/3rd of all the
family assets and properties including business, assets and property of
defendant nos.19 to 37-companies (except defendant nos.29 and 30), a
residential building at Kolkata and a land and building at Siliguri,
together with land and building at Simultala, for partition of the joint
family business, assets and properties as described in the Schedule of
the plaint, and consequential reliefs in respect of the management of
the defendant nos. 19 to 37-Companies and their assets as well as the
ancillary relief of permanent injunction.
3. As per the plaint case, the petitioners and the respondent nos. 1 to 18
are descendants of one Sukhdeo Prasad Agarwala. The said Sukhdeo
came from Haryana to Calcutta (now Kolkata) in the year 1950 with
small personal funds obtained in course of service and odd businesses
undertaken by Sukhdeo Prasad. In or around the year 1954, Sukhdeo
started a business under the name and style of SP Agarwala and
Company. The said business was initially a proprietorship concern
supplying tea stores and tea chest fittings.
4. As per the plaint case, the respondent nos. 19 to 37-Companies are
family companies, the shareholding of which are owned, controlled and
managed by the family of Sukhdeo Prasad. Such shareholdings in the
3different companies are, as per the plaint, interlocked to ensure the
least incidence of tax. Accordingly, the plaintiff/petitioners claim that
the entire assets and businesses, which are the subject-matter of the
suit, emanate from the joint family funds, which can be traced back to
the family patriarch Sukhdeo.
5. The defendant/respondent no.25-Company took out an application
under Order VII Rule 11 of the Code, seeking rejection of the plaint
primarily on the ground that the reliefs sought in the suit cannot be
granted by a Civil Court but have to be urged before the National
Company Law Tribunal (NCLT). The learned Trial Judge agreed with
the said contention and returned the plaint.
6. Learned senior counsel appearing for the appellant contends that the
primary reliefs sought in the suit are declaration of title and partition,
which are exclusively within the domain of the Civil Court to grant,
particularly if complicated questions of title are involved.It is argued
that the NCLT does not have jurisdiction to decide the same.
7. The reliefs sought in respect of the affairs of the respondent-Companies
are consequential to such main reliefs and, as such, cannot be a
determinant of jurisdiction.
8. It is next argued that there cannot be a partial return or rejection of
plaint.Even if the Civil Court is ultimately of the opinion that some of
the reliefs cannot be granted, those can then be relegated to the
appropriate forum. However, such anticipation cannot deter the Civil
Court from adjudicating on the title and partition as claimed by the
plaintiffs/appellants.
4
9. Learned senior counsel appearing for the appellants next argues that
by an order dated July 15, 2017, the learned Trial Judge had rejected a
similar application under Order VII Rule 11 of the Code filed by the
defendant/respondent no.19-Company on the self-same grounds.
Hence, the present application for rejection of plaint is barred by the
principle of res judicata. It is argued that it is well-settled that res
judicata applies at different stages of the same suit.
10. It is next contended by the appellants that the principles governing
quasi-partnerships are to be read into the present context, since all the
respondent-Companies are family companies where the family
members of Sukhdeo hold shares and have controlling interest. The
cross-shareholdings of the family-members of Sukhdeo Prasad in the
Companies clearly indicate that the concept of quasi-partnership
governs those. The directorships of the companies are primarily
distributed between the joint family-members and the control and
majority shareholding in the companies vests with the family members
of Sukhdeo. The family companies were formed with the common
funds of the family and, as such, the declaratory and partition suit is
very much maintainable.
11. It is argued that a combined reading of Sections 241 and 242, along
with Section 430, of the Companies Act, 2013 (hereinafter referred to as
the “2013 Act”) would show that the said provisions were incorporated
with effect from June 1, 2016 whereas the suit was filed on June 26,
2006. As such, the bar incorporated therein is not attracted to the
present suit.
5
12. Section 465 of the 2013 Act provides that prosecution under repealed
enactments pending before the 2013 Act are to continue to be heard
and disposed of by the court which is in seisin of the matter.
13. Learned senior counsel cites Ammonia Supplies Corpn. (P) Ltd. v.
Modern Plastic Containers (P) Ltd., reported at (1998) 7 SCC 105 and
Sangramsinh P. Gaekwad and Others v. Shantadevi P. Gakewad (dead)
through Lrs. and Others, reported at (2005) 11 SCC 314, in support of
the proposition that if disputed questions of title are involved, it is the
Civil Court which has to adjudicate such issues.
14. Learned senior counsel next cites Aruna Oswal v. Pankaj Oswal,
reported at (2020) 8 SCC 79, on the proposition that the questions of
inheritance of shareholding in companies can only be decided by a Civil
Court.
15. By placing reliance on Dwarka Prasad Agarwal (D) by LRS. and another
v. Ramesh Chander Agarwal and others, reported at (2003) 6 SCC 220,
it is argued that the jurisdiction of the Civil Court is not completely
ousted by the Companies Act, 1956. The same principle ought to apply
to the 2013 Act as well.
16. The concept of quasi-partnership, it is argued, is not alien to the
Companies Act and for such purpose the courts can lift the corporate
veil. For such proposition, learned senior counsel cites HindOverseas
(P) Ltd. v. Raghunath Prasad Jhunjhunwalla and others, reported at
(1976) 3 SCC 259.
17. It is argued that in Sardar Khan and others v. Syed Najmul Hasan (Seth)
and others, reported at (2007) 10 SCC 727,the Supreme Court held that
6
suits pending at the commencement of the Companies Act, 2013
cannot be dismissed or transferred to the NCLT.
18. Insofar as the argument made by the respondents that the suit is
barred by the provisions of the Prohibition of Benami Property
Transactions Act, 1988 (for short, “the Benami Act“), as amended, are
not applicable. The Benami argument, it is contended, is urged for the
first time by the respondents in the appeal and, having not been taken
in the Trial Court, ought not to be entertained by this Court.
19. Learned senior counsel cites Section 2(9)(A)(b) of the Benami Act to
argue that sub-clauses (i) and (iv) of the same stipulate exceptions to
the bar under the Benami Act, which are attracted in the present
case.As such, the suit is not hit by the bar provided under the Benami
Act.
20. It is further argued that the amendments brought to the Benami Act in
the year 2016 are not applicable to the present suit, which was
instituted in the year 2006, as the 2016 amendments do not have
retrospective operation.
21. It is further argued that under the amended Section 65 of the 2016 Act,
there cannot be a dismissal of a suit but the same can merely be
transferred to the Adjudicating Authority or the Appellate Tribunal.
Learned senior counsel takes the court through Sections 21, 24 and 26
of the 2016 Amending Act to argue that the Initiating Authority can call
for information and impound documents as well as issue notice for
attachment of a benami property. Only on receipt of a reference from
the Initiating Officer, the Authority may adjudicate a property to be a
7
Benami property. Hence, the process of returning the plaint in a suit is
not contemplated under the Benami Act, as amended in 2016.
22. It is further argued that the non-joinder of other shareholders in the
defendants/respondent-Companies cannot be a ground for return of
the plaint, since in view of the frame of the suit, which is for declaration
and partition primarily, the other shareholders of the respondent-
Companies are not necessary or proper parties. Moreover, the
appellants do not claim merely as shareholders of the said Companies
but claim title to the assets of the Company, which were formed from
the joint family nucleus of the larger family of Sukhdeo.
23. Learned counsel for the respondent no.25, supported in substance by
the other respondents, controverts the submissions of the appellants
and argues that the bulk of the reliefs claimed in the suit pertain to the
affairs and management of the respondent-Companies and as such, the
NCLT has exclusive jurisdiction under Sections 241 and 242 of the
2013 Act, read with Section 430 of the said Act, to decide such issues.
24. It is argued that a shareholder in a company acquires merely a right to
participate in the profits of the company but does not have any interest
in the assets of the company. In support of such proposition, learned
counsel relies on Bacha F. Guzdar v. Commissioner of Income Tax,
Bombay, reported at(1954) 2 SCC 563.
25. Learned counsel next cites Delhi & District Cricket Association v. Sudhir
Kumar Aggarwal and others, reported at 2020 SCC OnLine Del 1223,
where it was held that the bar under Section 430 of the 2013 Act is to
be strictly construed.
8
26. Learned counsel next cites T. Arivandandam v. T.V. Satyapal and
another, reported at (1977) 4 SCC 467, for the proposition that if clever
drafting has created the illusion of a cause of action, the court must nip
it in the bud at the first hearing.
27. Learned counsel for respondent no. 25 thereafter places reliance on
Ammonia Supplies (supra), in support of the proposition that the
disputes involved in the present suit ought to have been decided by the
NCLT. Learned counsel also cites Shashi Prakash Khemka (Dead) by
LRS and another v. NEPC Micon (Now NEPC India Limited) and others,
reported at (2019) 18 SCC 569 to support his arguments on the
jurisdiction of NCLT qua disputes regarding transfer of shares, etc., in
the context of Section 430 of the 2013 Act.
28. Learned counsel also relies on a Division Bench Judgment of this Court
in Shyamlal Purohit and another v. Jagannath Ray and another,
reported at AIR 1969 Cal 424, where it was held that the interest of the
shareholder does not amount to more than a right to participate in the
profits in the company. The company is a juristic person and is
distinct from its shareholders and it is the company which owns the
property and not the shareholders.
29. Learned counsel thereafter places reliance on another Division Bench
Judgment of this Court in Purna Investment Ltd. v. Bank of India Ltd.
and others, reported at 1982 SCC OnLine Cal 296, for the same
proposition, followed by Chalasani Udaya Shankar and Others v. Lexus
Technologies Pvt. Ltd. and Others, reported at 2024 SCC OnLine SC
2451, where the Supreme Court observed that the jurisdiction of the
9
Civil Courts or for that matter any other forum would be barred when
the subject-matter of the dispute squarely falls within the domain and
jurisdiction of the courts/forum constituted under the provisions of the
Act of 1956/Act of 2013.
30. Learned counsel next cites Chittoori Subbanna v. Kudappa Subbanna
and Others, reported at AIR 1965 SC 1325, for the proposition that a
pure question of law can be raised at any stage of the proceeding. Thus,
it is argued, the question of the suit being barred under the Benami Act
can very well be raised for the first time in the present appeal.
31. The respondents also cite a Division Bench judgment of this Court,
reported at AIR 2008 Cal 98 [Allahabad Bank v. Shank’s (Steel Fab Pvt.
Ltd. & Ors.)], for the proposition that a plaint can be rejected where the
suit appears from the statements made in the plaint to be barred by
any law, upon a scrutiny only of the averments made in the plaint. If it
appears from the averments made in the plaint itself that the court
cannot entertain the suit because of any bar created by law, the court
is left with no other alternative but to reject the plaint by taking
recourse to Rule 11(d) of Order VII. It was held that such a provision is
mandatory and no discretion is left with the court in that regard.
32. Learned counsel reiterates the same proposition by citing Prem Lala
Nahata and another v. Chandi Prasad Sikaria, reported at (2007) 2 SCC
551.
33. Lastly, learned counsel cites a judgment of a learned Single Judge of
this Court in Sri Tapan Prakash Bose v. Sri Arun Kumar Bose &Ors.,
reported at 2008 SCC OnLine Cal 227, where it was held that the
10
plaintiffs are to elect which of the causes of action they want to pursue
if there is a misjoinder of causes of action. Hence, it is argued, the
plaintiffs in the present case are required to opt out of the reliefs sought
against the Companies if they want the suit to be continued before the
Civil Court.
34. After going through the materials on record as well as considering the
arguments of the parties, we come to the following conclusions:
35. There are several aspects of the issues involved herein and we propose
to discuss those under separate heads.
Res Judicata
36. By an order dated July 15, 2017 passed in the suit from which the
present appeal emanates, we find that the Trial Court rejected an
application filed by the defendant/respondent no.19-Company under
Order VII Rule 11 of the Code of Civil Procedure. The grounds for
rejection of plaint raised in the said application were identical as the
present application of the respondent no.25 inasmuch as it was
contended by the defendant/respondent no. 19 in the said application
that the suit is not maintainable before a Civil Court due to the bar
contemplated under the Companies Act, 2013. The court, by relying
upon a previous refusal of injunction where a similar point arose,
elaborately discussed the issue and turned down the contention of the
defendant no.19 as to the suit being barred by law.
37. It is well-settled that the principle of res judicata operates at different
stages of the same suit. Since both the applications have been filed
under Order VII Rule 11 of the Code, no distinction can be drawn
11
between the powers of the court or the competence of the court to
decide the issues involved, which were similar in the present case as
that on the earlier occasion, when a similar prayer was rejected by the
order dated July 15, 2017. The said order has attained finality, having
not been assailed successfully. Hence, the present application of
respondent no.25 is barred by the principle of res judicata.
Partial rejection/return of plaint
38. We find from the reliefs sought in the plaint that the argument as to the
NCLT having jurisdiction applies only to certain consequential reliefs
sought in the suit in respect of alleged mismanagement of the funds of
the defendant-Companies. Even if the said reliefs are held to be barred
at the final hearing of the suit, the primary relief of declaration and
partition cannot be held to fall within the domain of the NCLT’s
jurisdiction. As held in Ammonia Supplies (supra) and Sangramsinh P.
Gaekwad (supra), disputed questions which are pure questions of title
cannot be adjudicated under the Companies Act. As held in Dwarka
Prasad Agarwal (D) by LRS. (supra), the jurisdiction of the Civil Court is
not completely ousted by the Companies Act, 1956.
39. The plinth of the plaint case is inheritance of the shareholding and
assets of the defendant-Companies by the plaintiffs. What has been
claimed in the suit is a declaration of their title in the assets which are
the subject-matter of the suit vis-a-vis the Companies involved, on the
strength of shareholding and cross-shareholdings which prima facie
indicate that it is the joint family, comprised of the successors of late
Sukhdeo Prasad, who have pervasive control over the Companies. The
12
Directorship of the Companies are primarily held by the family-
members of Sukhdeo Prasad. Thus, going by the averments made in
the plaint, the Companies are joint family companies to which the
concept of quasi-partnership is squarely applicable. Since allegations of
mismanagement have been made, which are consequential to the reliefs
of declaration and partition sought in the suit, the principle laid down
in Hind Overseas (P) Ltd. (supra) is squarely applicable as per the plaint
case. It is only the plaint case which has to be looked into for the
purpose of deciding an application under Order VII Rule 11.
40. The plinth of the plaint case is that the entire assets of all the
defendants, be them juristic/corporate entities or biological persons,
emanate from the joint family nucleus of the family patriarch Sukhdeo
Prasad. Thereafter the plaint goes on to plead that such joint family
nucleus was used for the purchase of assets and to gain control over
the family companies, which all started from the sole proprietorship of
late Sukhdeo Prasad. Again, at least three of the joint assets which are
the subject-matter of the suit are immovable properties not belonging to
any of the Companies and as such, were rightly brought within the
hotchpot of the partition suit.
41. It is well-settled that there cannot be any partial rejection of plaint, as
held in Sejal Glass Limited v. Navilan Merchants Private Limited,
reported at (2018) 11 SCC 780. In any event, if the Civil Court is of the
opinion at the final hearing of the suit, upon taking evidence and
hearing arguments of the parties, that a part of the claims do not fall
within its domain but are to be decided by the NCLT, it is always open
13
for the court to relegate the parties for such reliefs to the appropriate
forum, while granting decrees in respect of the primary reliefs.
42. Importantly, the reliefs pertaining to the management of the affairs of
the Companies are only consequential to the primary reliefs of
declaration of the shares of the parties in respect of the subject-matter
of the suit, flowing from the claim that those can be traced back to the
joint family nucleus, and partition of such joint assets. The said
primary reliefs cannot be granted by the NCLT but comes squarely
within the purview of the Civil Court. Even as per the judgments cited
by the respondents, if the disputes pertain to questions of title and
squarely fall within the domain of the Civil Court, the exclusion of the
jurisdiction of the Civil Court under Section 9 of the Code of Civil
Procedure is not readily inferred. Thus, if at all, the plaint would have
to be rejected/returned partially. Such split being not permissible in
law, the impugned order returning the plaint as a whole is bad on such
count as well.
Jurisdiction of the NCLT
43. A careful perusal of the reliefs claimed in the plaint against the
defendant-Companies shows that they are ancillary reliefs flowing from
the primary reliefs of declaration and partition. Consequential reliefs
cannot be the determinant of the jurisdiction of the court. Importantly,
the NCLT does not have jurisdiction under Sections 241 or 242 of the
2013 Act to decide the title of parties either to shares or to the assets of
Companies. The plaintiffs do not claim merely in the capacity of
shareholders but seek a declaration of the joint ownership on the
14
strength of title derived from the fact that the entire assets of the
Companies involved were also purchased from the joint family nucleus
of the family and can be sourced back to such nucleus.
44. Thus, the reliefs do not confine themselves to mismanagement of the
affairs of the Company standing on an independent footing. The
plaintiffs claim over the entire subject-matter of the suit, including in
the assets of the Company and the shares of the Companies, apart from
certain other immovable properties which do not belong to the
Companies. Such claim of title by inheritance to the shareholding and
other assets is entirely beyond the jurisdiction of the NCLT to
adjudicate upon under Sections 241 and 242 of the 2013 Act.
45. The bar in Section 430 of the 2013 Act is only applicable in respect of
reliefs which come within the exclusive jurisdiction of the NCLT and
cannot be stretched beyond the same. Reliefs which can be granted
exclusively by the Civil Court, thus, cannot be covered by Section 430
of the 2013 Act. Hence, the NCLT does not have jurisdiction to grant
the primary reliefs claimed in the suit.
Concept of quasi-partnership
46. The cross-holdings in the shares of the different Companies as pleaded
in the plaint indicate pervasive control over the Companies by the
descendants and family-members of Late Sukhdeo Prasad. The
Directorship in most of the Companies is substantially held between
the family-members and the plaint case is that the Companies were
formed from the joint funds of the family. The cross-shareholdings
averred in the plaint clearly show that control over all the assets of the
15
defendants-Companies vests in the joint family. Hence, the concept of
quasi-partnership can definitely by borrowed in the backdrop of the
plaint case.
47. It is to be noted that the decisions in Ammonia Supplies (supra) and
Shashi Prakash Khemka (Dead) by LRS (supra) highlight the fact that
the NCLT has jurisdiction only in cases covered by the Companies Act,
2013. In the said judgment, the Supreme Court also noted that Section
430 of the 2013 Act bars the jurisdiction of the Civil Courts only in
matters in respect of which exclusive power has been conferred on the
NCLT and not otherwise. Unless the remedy of a Civil Suit is completely
barred, Section 430 is not attracted at all.
48. In the judgments cited by the respondent, the questions pertained to
rectification and other reliefs sought in respect of shares as well as
mismanagement of Companies exclusively. As opposed thereto, in the
present case, the primary reliefs sought are declaration of title and
partition. In view of the cross-shareholdings and pervasive control over
the defendants-Companies by the joint family-members, we are thus of
the opinion that the concept of quasi-partnership can be applied to the
present case in view of the plaint averments.
Benami
49. Although it is pleaded by the appellant that benami is a new ground
argued for the first time in the appeal, since the court can suo moto
reject the plaint under Order VII Rule 11 of the Code and/or return a
plaint under Order VII Rule 10 thereof, and the argument of benami
has been made on the basis of the averments in the plaint itself and no
16
new facts are required to be decided, we are of the opinion that the said
ground can be validly urged by the defendants/respondents even for
the first time in the present appeal.
50. The argument of the plaintiffs/appellants that since the latest
amendments to the Benami Act came in 2016, ten years subsequent to
the institution of the suit, the same cannot be applied, is not
acceptable, since as on the date when the application under Order VII
Rule 11 of the Code was filed, the 2016Amendment had already come
into force. The relevant juncture for deciding the applicability of the bar
incorporated in the Benami Act by the 2016 Amendment is the date
when the decree is passed. Hence, the said defence of the plaintiffs is
not tenable in the eye of law.
51. Even considering from such angle, Section 2(9)(A)(b) of the Benami Act,
in sub-clauses (i) and (iv) thereof, incorporates certain exceptions to the
bar of benami. Sub-clause (i) contemplates, as one of such
exceptions,a scenario when the property is held by a Karta or a member
of a Hindu Undivided Family (HUF), if the property is held for his
benefit or for the benefit of the other members in the family and the
consideration for such property has been provided or paid out of the
known sources of the HUF. In the present case, the said exception is
very much applicable at a glance, since the entire title to the suit
properties and the shares of the parties in the suit properties are
claimed on the premise of the joint family nucleus which allegedly
forms the basis of acquisition of the properties.
17
52. Again, under sub-clause (iv), where the names of the lineal ascendants
or descendants and the individual appear asjoint owners and the
consideration for the property has been provided or paid out of known
sources of the individual, it is very much arguable that the exception to
the bar envisaged in the Benami Act is attracted.
53. Such exceptions cannot be ruled out at the threshold,in the preliminary
stage when the court adjudicates on an application for rejection/return
of plaint. Such questions are to be decided upon taking detailed
evidence and, as such, can only be finally adjudicated at the hearing of
the suit upon a full-fledged trial on evidence; not at the inception under
Order VII Rule 11 or Order VII Rule 10 of the Code.
54. Thus, we are of the opinion that the bar under the Benami Act is, to
say the least, an arguable issue and required to be decided upon
adduction of detailed evidence on facts. Hence, no occasion arises at
this premature stage for the court to return the plaint or reject the
plaint on the ground of benami.
Conclusion
55. In view of the above discussions, we are of the considered opinion that
the learned Trial Judge committed a patent error of law and fact in
entertaining and deciding the application under Order VII Rule 11 of
the Code at the behest of the respondent no.25 and ultimately
moulding the relief to return the plaint to be presented before the
appropriate forum.
56. In such view of the matter, the appeal succeeds.
18
57. Accordingly, F.M.A.T. No.543 of 2023 is allowed on contest, thereby
setting aside the impugned Order dated December 22, 2021 passed in
Title Suit No. 88 of 2006 by the Learned Civil Judge (Senior Division),
Fourth Court at Alipore, District: South 24 Parganas.
58. CAN 1 of 2022 and CAN 2 of 2024 also stand disposed of accordingly.
59. There will be no order as to costs.
(Sabyasachi Bhattacharyya, J.)
I agree.
(Uday Kumar, J.)