Delhi High Court
Suraj Prakash Arora & Ors. vs Roshanara Club Limited & Ors. on 15 April, 2025
Author: Jyoti Singh
Bench: Jyoti Singh
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 15th April, 2025
+ CS(OS) 210/2025 & I.A. 8546/2025
SURAJ PRAKASH ARORA & ORS. .....Plaintiffs
Through: Mr. Mohit Chaudhary, Mr. Kunal
Sachdeva and Ms. Katyayani Vajpayee,
Advocates.
versus
ROSHANARA CLUB LIMITED & ORS. .....Defendants
Through: Mr. Manik Dogra, Senior Advocate
with Mr. Lalltaksh Joshi, Mr. Dhruv Pande,
Mr.Imon Benerjee and Ms. Ananya Sanjiv
Saraogi, Advocates for Defendant No.1.
Mr. Santosh Kumar Rout, Standing Counsel with
Ms. Dharna Veragi, Mr. B.N. Mishra and
Ms.Shilpa Chaursia, Advocates for BoB/
Defendant No.14.
Mr. Arun Aggarwal and Mr. Shivam Saini,
Advocates also for BoB/Defendant No.14.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JUDGEMENT
JYOTI SINGH, J.
1. Plaintiffs are stated to be veteran members of Roshanara Club Limited
(‘RCL’), a Public Limited Company incorporated under Companies Act,
1956 (‘1956 Act’). RCL was established as a not-for-profit charitable
company promoting commerce, art, science and charity under Section 25 of
the 1956 Act and is now governed under Section 8 of Companies Act, 2013
(‘2013 Act’). Present suit has been filed by the Plaintiffs seeking the
following reliefs against Defendants No. 2 to 10:
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“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 01.10.2023, all representations and
communications made by Defendant No. 2, projecting himself as General
Secretary of Roshanara Club Limited (RCL) and using RCL’s letterhead,
are illegitimate, illegal, null, and void, and completely devoid of any legal
efficacy or consequence, and/or
5. Declare that Communication dated 07.12.2024 (Document No.8) issued
by Defendant No. 2, projecting himself as General Secretary of Roshanara
Club Limited (RCL) and using RCL’s letterhead is illegitimate, illegal,
null, and void, and completely devoid of any legal efficacy or
consequence, and/or
6. Direct Defendant Nos. 2 to 10 to strictly comply with and adhere to the
provisions of Clauses 43 and 44 of the Memorandum of Association
(MOA) of Roshanara Club Limited (RCL), in their entirety and spirit,
and/or
7. Pass an order of Permanent Injunction restraining Defendant Nos. 2 to
10 from unauthorizedly entering into any agreement/communication using
the name of Roshanara Club Limited (RCL), including the one with Delhi
Development Authority (DDA), and/or
8. Injunct Defendant Nos. 2 to 10 from representing themselves as the
competent authority of Roshanara Club Limited (RCL), for the purpose of
entering into any agreement/settlement as detailed in the affidavit dated
19.12.2024 (Document No. 13), and/or
9. Injunct Defendant Nos. 2 to 10 from operating bank accounts of
Roshanara Club Limited (RCL) in banks, namely HDFC, AXIS, SBI, Bank
of Baroda and other banks, the account details of which are specified in
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10. Declare that Defendant Nos. 2 to 10 have committed acts of
misfeasance and malfeasance with regard to the resources of Roshanara
Club Limited (RCL) and have illegally and unauthorizedly withdrawn
amounts from the bank accounts. Direct that the withdrawn amounts be
restored by issuing recovery order from each and every Defendant, who
shall be jointly and severally liable for the same, and/or
11. Pass an awarding Damages to the tune of Rs. 2 crores to the Plaintiff
declaring that it is being subjected to intentional and malicious
harassment by the Defendants.
12. Direct Defendants Nos. 2 to 10 to provide a detailed and accurate
rendition of accounts of Roshanara Club Limited (RCL) from the date of
their appointment till date, and further order a forensic audit into the
accounts of RCL to investigate and scrutinize all financial 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 No. 2 to 10 were
elected as members of Executive Committee of RCL for one year from
01.10.2022 till 30.09.2023 in terms of Clause 43 of Memorandum of
Association (‘MoA’) dated 15.08.1922. The allegations against the said
Defendants are that despite the expiry of their term, Defendants are
wrongfully continuing as members of the Executive Committee and are
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illegally occupying management positions. Plaintiffs also allege
misappropriation of assets; financial exploitation; wrongful financial
transactions; unauthorized deals with DDA in respect of 23 acres of RCL
land without members’ consent; illegal withdrawal of over Rs.5 crores from
bank accounts, post-expiry of the tenure, without transparency or audit;
failure to hold Annual General Meeting due by 30.09.2023; impersonation
as RCL office bearers in legal proceedings including false claims to being
the Secretary etc. In a nutshell, the allegations are of oppression and
mismanagement of RCL.
3. Defendant No.1/RCL has raised a preliminary objection to the
maintainability of the suit and it is asserted that this Court has no jurisdiction
to try and entertain the suit in view of the absolute bar contained in Section
430 of 2013 Act and therefore, the plaint be rejected at the threshold. It was
argued that perusal of the prayer clause ex-facie manifests that each of the
reliefs sought by the Plaintiffs relates to allegations of oppression,
misfeasance and mismanagement of the affairs of RCL and therefore falls
within the jurisdiction of National Company Law Tribunal (‘NCLT’) under
Sections 241 and 242 of the 2013 Act. It was urged that in fact, Plaintiffs
themselves admit in paragraph 6 of the plaint that the reliefs sought are
covered under Sections 241 and 242 of the 2013 Act but only because they
do not meet the threshold of Section 244 i.e. 10% of strength or 100
members of RCL, Plaintiffs have approached this Court and not NCLT,
which is also a fallacious ground.
4. It was argued that prohibition under Section 430 of the 2013 Act is
absolute as it expressly stipulates an express bar on jurisdiction of this Court
to entertain any suit or proceedings in respect of any matter which NCLT is
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empowered to determine under the 2013 Act and admittedly, subject matter
of present suit is covered under provisions of Sections 241 and 242 of the
said Act. In support of this plea, learned Senior Counsel placed reliance 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 jurisdiction in these matters and significantly, even
in this case, there were only two Plaintiffs who did not meet the required
threshold under Section 241 of the 2013 Act.
5. It was further argued that this Court has the power and jurisdiction to
reject the plaint at the outset if it does not meet muster and the suit is barred
under Section 430 of the 2013 Act and need not wait for the appearance of
the Defendant and/or for filing an application for rejection of the plaint
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under Order VII Rule 11 CPC. Emphasis is laid on the expression ‘shall’ in
Order VII Rule 11(d) of CPC to bring home the point that where the suit
appears from the statement in the plaint to be barred by law, the plaint shall
be rejected and there is no discretion with the Court. In Sopan Sukhdeo
Sable and Others v. Assistant Charity Commissioner and Others, (2004) 3
SCC 137, the Supreme Court held that Rule 11 of Order VII CPC casts a
duty on the Court to perform its obligations in rejecting the plaint when the
same is unsustainable on account of disability under any of the categories of
Rule 11, without intervention of the Defendant. In Patil Automation Private
Limited and Others v. Rakheja Engineers Private Limited, (2022) 10 SCC
1, the Supreme Court held that Order VII Rule 11 CPC does not provide that
Court can reject a plaint only on an application and in fact the provision is
itself silent of any such requirement. Since summons have to be issued only
in a duly instituted suit, in a case where the plaint is barred under Rule 11(d)
of Order VII, the stage for consideration begins when the Court can reject
the plaint under Order VII Rule 11 CPC. Reliance was also placed on a
judgment of this Court in Jaiveer Singh Virk v. Sir Sobha Singh & Sons
Private Limited, 2020 SCC OnLine Del 498, where the Court observed that
once the Legislature in its wisdom deemed it appropriate that less than
prescribed number of shareholders or those holding less than the prescribed
number of shares should not be permitted to initiate legal proceedings with
respect to management and affairs of the company, it would be travesty of
Statute to hold that less than prescribed number of shareholders, though not
entitled to approach NCLT, can interfere with the Management of the
company’s affair by approaching the Civil Court.
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6. Responding to the preliminary objection raised by Defendant No. 1,
Mr. Mohit Chaudhary, learned 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 nature except suits of which their cognizance is either
expressly or impliedly barred.
7. It was vehemently argued that a bare look at the provisions of
Sections 241 and 242 makes it clear that power under Section 430 will not
apply to the case in hand as the threshold is not met and therefore, at this
juncture, two remedies are available to the Plaintiffs i.e. either to approach
NCLT or file a suit which means that this Court and NCLT have concurrent
jurisdiction and therefore availability of one remedy will not preclude the
other and provision of Section 430 cannot impose an absolute bar to oust
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Civil Court’s jurisdiction. Division Bench of this Court in Jai Kumar Arya
& Ors. v. Chhaya Devi & Anr., 2017 SCC OnLine Del 11436, has held that
provisions which operate to exclude ordinary jurisdiction of Civil Courts are
to be strictly construed and exclusion of such jurisdiction is not to be lightly
inferred and that principle of exclusion of jurisdiction is never absolute.
8. In the present case, in any event, Defendant No.1 cannot take a plea of
absolute bar by Section 430 inasmuch as the remedy before NCLT is not
available in the absence of meeting the threshold in terms of Section 244.
No doubt, proviso to Section 244 empowers NCLT, on an application made
in this behalf, to waive all or any of the requirements specified in clause (a)
or clause (b) so as to enable members to apply under Section 241 but there is
no certainty that such a waiver will be granted and if it is not granted on an
application made by the Plaintiffs, they will have no remedy but to fall back
on a remedy before this Court. Therefore, Defendant No.1 cannot raise the
objection on maintainability and oust the Plaintiffs from the jurisdiction of
the Civil Court on a hypothesis that NCLT shall exercise the power in
favour of the Plaintiffs to waive the requirement of the given minimum
strength. Learned counsel strenuously pointed out to an order passed by
NCLT on 29.11.2024 in CP No.38/ND/2024, where RCL was Defendant
No.1 and where NCLT declined to grant waiver to stress on the point that
approaching NCLT will be a futile exercise. This order was also highlighted
to assert that when parties therein approached NCLT, RCL took a
conflicting stand and opposed the grant of waiver as the threshold of
requisite strength of 1/5th members was not met.
9. Learned counsel also relied on the judgment of the Division Bench of
the Calcutta High Court in case of Eastern Indian Motion Picture
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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
broader than those by a Civil Court under Section 9 of CPC or that NCLT is
a specialised Tribunal constituted for purpose of speedier and effective
regulation of affairs of the company, however, present is not a case where
the absolute bar will apply for lack of the initial threshold to apply under
Section 241 read with Section 244 of the 2013 Act. The judgment in Delhi
& District Cricket Association (supra) has no applicability to the present
case as there was no argument on the issue of initial threshold as is in the
present case. Similarly, judgment in Jaiveer Singh Virk (supra) does not
relate to the threshold under Section 244 and moreover, it was a case of the
shareholder of a profit making company and not a Section 8 company,
which is a ‘no profit no loss’ entity. Last but not the least, it was argued that
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in the case of Firm Seth Radha Kishan (Deceased) Represented by Hari
Kishan and Others v. Administrator, Municipal Committee, Ludhiana,
1963 SCC OnLine SC 138, the Supreme Court held that a Statute expressly
or by necessary implication can bar the jurisdiction of Civil Courts in
respect of a particular matter but mere conferment of special jurisdiction on
a Tribunal in respect of the said matter does not by itself exclude the
jurisdiction of Civil Courts.
11. Mr. Manik Dogra, learned Senior Counsel, arguing in rejoinder
reiterated the observations of this Court in SAS Hospitality Pvt. Ltd. (supra)
and Delhi & District Cricket Association (supra). Distinguishing the
judgment of the Division Bench in Jai Kumar Arya (supra), it was argued
that the judgment is distinguishable on facts and circumstances of the
present case and moreover in all the three judgments i.e. SAS Hospitality
Pvt. Ltd. (supra), Delhi & District Cricket Association (supra) and Jaiveer
Singh Virk (supra), Co-ordinate Benches of this Court have referred to the
said judgment and distinguished it holding that in matters where NCLT has
jurisdiction, Civil Court will not exercise the jurisdiction and plaint ought to
be rejected.
12. It was further argued that no doubt, there is a threshold laid down to
apply for seeking relief against oppression etc. but the power to waive the
threshold eligibility requirements under proviso to Section 244(1)(b) of the
2013 Act also lies with NCLT. It is not for the Plaintiffs to pre-judge or
speculate that if and when, waiver is sought for applying under 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
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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 for
the Defendant to appear on issuing summons and/or on appearance of the
Defendant to file a formal application for rejection of plaint. In Sopan
Sukhdeo Sable (supra), the Supreme Court held that Rule 11 of Order VII
CPC lays down an independent remedy made available to the Defendant to
challenge the maintainability of the suit itself, irrespective of his right to
contest the same on merits. The law ostensibly does not contemplate any
stage when the objection can be raised and also does not say in express
terms about the filing of a written statement. The word ‘shall’ used in the
Rule clearly implies that it casts a duty on the Court to perform its
obligations in rejecting the plaint when the same is hit by any of the
infirmities provided in four clauses of Order VII Rule 11 CPC, even without
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intervention of the Defendant. In Patil Automation Private Limited
(supra), the Supreme Court held that Order VII Rule 11 CPC does not
provide that the Court is to discharge its duty of rejecting the plaint only
on an application. The Rule is in fact silent about any such requirement.
Since summon is to be issued in a duly instituted suit, in a case where
plaint is barred under Rule 11(d), the stage begins at that time when
Court can reject the plaint. Relevant passage from the judgment is as
follows:-
“94.3. Order 7 Rule 11 does not provide that the court is to discharge its
duty of rejecting the plaint only on an application. Order 7 Rule 11 is, in
fact, silent about any such requirement. Since summon is to be issued in a
duly instituted suit, in a case where the plaint is barred under Order 7
Rule 11(d), the stage begins at that time when the court can reject the
plaint under Order 7 Rule 11. No doubt it would take a clear case where
the court is satisfied. The Court has to hear the plaintiff before it invokes
its power besides giving reasons under Order 7 Rule 12. In a clear case,
where on allegations in the suit, it is found that the suit is barred by any
law, as would be the case, where the plaintiff in a suit under the Act does
not plead circumstances to take his case out of the requirement of Section
12-A, the plaint should be rejected without issuing summons. Undoubtedly,
on issuing summons it will be always open to the defendant to make an
application as well under Order 7 Rule 11. In other words, the power
under Order 7 Rule 11 is available to the court 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
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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 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.”
18. Clearly, Section 430 of the 2013 Act on a plain reading bars the Civil
Court from entertaining any suit or proceeding in respect of any matter
which NCLT is empowered to determine by or under the Companies Act,
2013 or any other law for the time being in force. This is a settled position
and in this context, I may only refer to judgment of the Division Bench in
Jai Kumar Arya (supra) and also of the Co-ordinate Benches of this Court
in SAS Hospitality Pvt. Ltd. (supra) and Delhi & District Cricket
Association (supra). There is also no quarrel with the proposition that
provisions such as Section 430 which operate to exclude the ordinary
jurisdiction of Civil Courts are to be strictly construed and exclusion of such
jurisdiction is not to be lightly inferred or that principle of exclusion of
jurisdiction is never absolute. While so observing, the Division Bench of this
Court in Jai Kumar Arya (supra), culled out certain principles from the
judgments of the Supreme Court and observed that the primary indicia
which would govern determination of the question whether jurisdiction of
Civil Courts is, in any particular case, ousted or not would appear to be:
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(i) whether the decision of the Tribunal, on which jurisdiction is conferred,
is also attributed finality by the Statute; and (ii) whether such Tribunal can
do what the Civil Court would be able to do and is, therefore, an efficacious
alternative to the Civil Court. Having so held, Division Bench further noted
that even when these two indicia stand satisfied, the jurisdiction of the Civil
Court would continue to exist where the action, complained against, violates
the Statute.
19. Taking note of these observations, Co-ordinate Bench of this Court in
SAS Hospitality Pvt. Ltd. (supra), emphasised that wherever NCLT
has jurisdiction to go into allegations pertaining to oppression or
mismanagement of the company or where conduct of the affairs of the
company is prejudicial to the interest of the company under Section 241 of
the 2013 Act, jurisdiction 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 also determine if in the interregnum, the DefendantSignature Not Verified
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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 the
affairs of the company.
16. The allegations in the present case relate to non-compliance of the
stipulations in Section 62 of the 2013 Act. The non-compliance of any
conditions contained in Section 62 of the 2013 Act also constitutes
mismanagement of the company, inasmuch as under Section 241 of the
2013 Act, the conduct of affairs of the company “in a manner prejudicial”
to any member or “in a manner prejudicial to the interest of the
company”, would be governed by the same. The jurisdiction to go into
these allegations, vests with the Tribunal under Section 242 of the 2013
Act. Under Section 242(2), the NCLT has the power to pass “such order as
it thinks fit”, including providing for “regulation of conduct of affairs of
the company in future”. These powers are extremely broad and are more
than what a Civil Court can do. Even if in the present case, the Court
grants the reliefs sought for by the Plaintiff, after a full trial, the effective
orders in respect of regulating the company, and administering the affairs
of the company, cannot be passed in these proceedings. Such orders can
only be passed by the NCLT, which has the exclusive jurisdiction to deal
with the affairs of the company.
17. Moreover, the powers of the NCLT being broader and wider than what
can be exercised by this Court in exercise of civil jurisdiction under
Section 9 CPC. The NCLT is a specialised Tribunal constituted for the
purpose of speedier and effective regulation of the affairs of the
companies. As observed by the Supreme Court in Union of India v. R.
Gandhi, (2010) 11 SCC 1 (hereinafter, ‘R. Gandhi’) and thereafter, in
Madras Bar Association v. Union of India, (2015) 8 SCC 583 (hereinafter,
‘Madras Bar Association’) the NCLT has been created by a specific
amendment in the law. The constitution of the NCLT has been upheld. The
relevant observations in the said R. Gandhi (supra) is set out below:
“33. The argument 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 ofSignature Not Verified
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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. This fact is specifically noted in the said
judgment. The provision pertaining to the constitution of the Appellate
Tribunal i.e. Section 10FR of the Companies Act, 1956 was duly taken
note of. Challenge was laid to the establishments of NCLT as well as
NCLAT on the ground that the Parliament had resorted to
tribunalisation by taking away the powers from the normal courts
which was essentially a judicial function and this move of the
Legislature impinged upon the impartiality, fairness and
reasonableness of the decision making which was the hallmark of
judiciary and essentially a judicial function. Argument went to the
extent that it amounted to negating the Rule of Law and trampling of
the Doctrine of Separation of Powers which was the basic feature of
the Constitution of India. What we are emphasising is that the
petitions spearheaded the attack on the constitutional validity of both
NCLT as well as NCLAT on these common grounds. The Court
specifically went into the gamut of all those arguments raised and
emphatically repelled the same.
12. The Court specifically rejected the contention that transferring
judicial function, traditionally performed by the Courts, to the
Tribunals offended the basic structure of the Constitution and
summarised the position in this behalf as under: We may summarize
the position as follows:
(a) A legislature can enact a law transferring the jurisdiction
exercised by courts in regard to any specified subject (other than
those which are vested in courts by express provisions of the
Constitution) to any tribunal.
(b) All courts are tribunals. Any tribunal to which any existing
jurisdiction of courts is transferred should also be a Judicial
Tribunal. This means that such Tribunal should have as members,
persons of a rank, capacity and status as nearly as possible equal
to the rank, status and capacity of the court which was till then
dealing with such matters and the members of the Tribunal should
have the independence and security of tenure associated with
Judicial Tribunals.
(c) Whenever there is need for ‘Tribunals’, there is no presumption
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that there should be technical members in the Tribunals. When any
jurisdiction is shifted from courts to Tribunals, on the ground of
pendency and delay in courts, and the jurisdiction so transferred
does not involve any technical aspects requiring the assistance of
experts, the Tribunals 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 any encroachment, intentional or unintentional, by either
the legislature or by the executive.
13. Thereafter, the Constitution Bench categorically dealt with the
Constitutional validity of NCLT and NCLAT under the caption
“Whether the constitution of NCLT and NCLAT under Parts 1B & 1C
of Companies Act are valid”, and embarked upon the detailed
discussion on this topic. It becomes manifest from the above that the
question of validity of NCLAT was directly and squarely in issue.
Various facets of the challenge laid to the validity of these two fora
were thoroughly thrashed out. No doubt, most of the discussion
contained in paras 107 to 119 refers to NCLT. However, on an insight
into the said discussion contained in these paragraphs, would
eloquently bear it out that it is inclusive of NCLAT as well. In para
121 of the judgment, which is already extracted above, the Court
specifically affirmed the decision of the High Court which held that
creation of NCLT and NCLAT was not unconstitutional. In view of
this, it is not open to the Petitioner even to argue this issue as it
clearly operate as res judicata.”
19. The bar under Section 430 of the 2013 Act being absolute in nature,
this Court is of the view that the jurisdiction to adjudicate the disputes
raised in the present case vests with the NCLT.
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xxx xxx xxx
25. In Jai Kumar Arya (supra), a Division Bench of this Court, dealing
with the bar under Section 430 of the 2013 Act, held as under:
“99. While examining the merits of these rival contentions, we are
fully aware of the interpretative principle, now trite in law, that
provisions which operate to exclude the ordinary jurisdiction of civil
courts are to be strictly construed, and exclusion of such jurisdiction
is not to be lightly inferred. The principle of exclusion of jurisdiction
is, moreover, never absolute.”
26. The bar under Section 430 of the 2013 Act has, therefore, to be strictly
construed and there can be no doubt about that. The Division Bench also
considered Dhulabai v. State of M.P., AIR 1969 SC 78 (hereinafter,
‘Dhulabai’), and held as under:
“101. As, perhaps, the most authoritative pronouncement on the issue,
the Constitution Bench of the Supreme Court, in Dhulabhai v. State of
M.P., AIR 1969 SC 78, set out the following 7 clear principles (of
which only the first and last are really relevant to the present case), to
be applied for 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 the said right and liability shall be determined by
the Tribunals so constituted, 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
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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
because it is a relevant enquiry.
(7) An exclusion of the jurisdiction of the civil court is not readily
to be inferred unless the conditions above set down apply.”
(Emphasis supplied)”
27. The Division Bench in Jai Kumar Arya (supra), after
applying Dhulabai (supra), lays down the following test:
“102 From the above authorities, the primary indicia, which would
govern determination of the question of whether the jurisdiction of
civil courts is, in any particular case, ousted, or not, would appear to
be (i) whether the decision of the tribunal, on which jurisdiction is
conferred, is also attributed finality by the statute, and (ii) whether
such tribunal can do what the civil court would be able to do and is,
therefore, an efficacious alternative to the civil court. Even when these
two indicia stand satisfied, the jurisdiction of the civil court would
continue to exist where the action, complained against, violates the
statute.
28. If these two tests are applied i.e., as to whether the Tribunal’s order is
attributed finality and as to whether the Tribunal would be able to do what
a Civil Court could do, it is clear 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
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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
rectification of the register of members, the NCLT is ’empowered to
decide’ -leading to the conclusion that this Court has no jurisdiction.”
20. In Delhi & District Cricket Association (supra), this Court was
considering an appeal under Section 104 read with Order 47 Rule 1 CPC
impugning an order of the Trial Court in a suit where two applications, one
under Order VII Rule 10 CPC and the second under Order VII Rule 11 CPC
were rejected. Appellant sought rejection of the plaint under Order VII Rule
11 CPC on account of lack of jurisdiction in view of the unequivocal bar
placed on Civil Courts by Section 430 of the 2013 Act. Relying on the
judgment of the Supreme Court in Shashi Prakash Khemka (Dead)
Through Legal Representatives and Another v. NEPC Micon (Now NEPC
India Limited) and Others, (2019) 18 SCC 569; judgment of this Court in
SAS Hospitality Pvt. Ltd. (supra); as also the judgment of the Madras High
Court in Viji Joseph v. P. Chander and Others, 2019 SCC OnLine Mad
10424, and on a comparison of the reliefs sought in the suit as also
examining relevant Sections of the 2013 Act detailing the powers of NCLT,
Court came to a conclusion that Sections 241, 242 and 244 of the 2013 Act
deal with all issues which were raised in the suit and hence, Trial Court
ought to have decided the issue of maintainability of the suit first. It was
observed by the Court that NCLT has been specifically empowered to
address grievances relating to the affairs of the company which may be
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prejudicial or oppressive to any member of the company etc. and the scope
of Section 430 being vast, jurisdiction of the Civil Court will be barred when
power to adjudicate vests in the Tribunal. Relevant paragraphs are as
follows:-
“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 determination of procedure not
provided for already in accordance with the principles of natural justice;
Rules 39 and 40 provide for production of evidence; Rule 43 empowers the
Tribunal to call for further 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 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 videoSignature Not Verified
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recording of the manner of appointments at the AGM in question, could
well be examined by the NCLT. That being the position, the issue of
maintainability ought to have been determined first by the trial court. It
did not have jurisdiction to entertain the suit. Accordingly, the impugned
order is set aside. The appeal is allowed.”
21. The judgment of the Madras High Court relied on in Delhi & District
Cricket Association (supra) is also significant as there the Court was
examining an election dispute under Section 20 of Companies (Management
and Administration) Rules, 2014. Analysing Section 242 and attending
circumstances of the case, it was concluded that only NCLT could deal with
the issue and Civil Courts have no jurisdiction. In Viji Joseph (supra),
Madras High Court discussed the expanse of Section 430 and referred to the
decision in Jai Kumar Arya (supra) but found the same to be inapplicable.
Court also discussed the expression ‘oppression’ regarding company’s
affairs and in that context, referred to the celebrated judgment of the
Supreme Court in S.P. Jain v. Kalinga Tubes Ltd., 1965 SCC OnLine SC
15. In order to avoid prolixity, I may only refer to few passages from Delhi
& District Cricket Association (supra), where Court has extensively
referred to the observations of the Supreme Court in S.P. Jain (supra) as
also to the observations in Jai Kumar Arya (supra) and Viji Jospeh
(supra):-
“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 ofSignature Not Verified
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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 Tribunal. This provision
has to be seen contextually and co-existing with Section 241. On a
complaint, power is to be exercised towards redressal. Prejudice may
either to a member, group of the company or the public at large.
15. A complaint touching upon the election conducted to the
management of the company would go to the root. Such a challenge is
to the very right to manage the affairs. A wrong election would
certainly have a cascading effect on the affairs in the form of
decisions and functioning of a company. Thus, it cannot be said that
Section 241 of the Act would only involve a complaint touching upon
the other affairs as against the process of election. As discussed
above, the challenge is to the very election itself and therefore, there
is no authority available to the office bearers to act and decide on
behalf of the company if held bad. Certainly such a challenge would
come within the purview of oppression and mismanagement. A
technical view contrary to that will make the entire object behind
Section 241 of the Act as redundant.
16. Section 242(h) of the Act also provides for removal of Managing
Director, Manager or any other Directors of the Company. As
discussed above, to understand Section 241 of the Act, a little peep
into Section 242 of the Act would be necessary. To put it differently, it
can never be accepted that on a complaint involving an act of
oppressiveness or mismanagement, a Managing Director, Manager or
any other Directors of the company can be removed as against their
alleged wrongful entry to function in the said capacity. Can it be ever
said that an election dispute of a company would never come within
the purview of Section 241 of the Act and therefore, no power can be
exercised under Section 242 of the 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 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.
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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.
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 law principles are not given a go-by in the proceedings of the
Tribunal, but it can go beyond. Once this position is made clear, then
it is very easy to understand the scope and ambit of Section 241. The
intendment of the legislature is to redress the disputes, more
particularly, internal ones of a company within the four walls of the
Tribunal. Therefore, the contention that complex or disputed issues to
be adjudicated upon only through the Civil Court would never arise at
all. Though, summary proceeding may be required by the Tribunal in
a given case, the Tribunal is not meant to follow it in all cases. Such a
leverage and flexibility is conferred on the Tribunal either act as a
regular or a special Court depending upon the nature of the complaint
behind it.
xxx xxx xxx
32. Reliance has been made on the Division Bench judgment of the
Delhi High Court in Jai Kumar Arya v. Chhaya Devi (FAO (OS)
253/2017 & CM No. 33724/2017 dated 07/11/2017), we have already
discussed the application of principle of Ejusdem Generis. In the light
of Section 430 of the Act, which has been dealt with by the Apex Court
in Shanti Prasad Jain v. Kalinga Tubes Ltd., ((1965) 2 SCR 720 dated
14.01.1965) coupled with the fact that there also the appeal is filed asSignature Not Verified
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against the order made in interlocutory application filed under Order
XXXIX Rules 1 and 3 of the Code of Civil Procedure, we accordingly
hold that the said decision will not help the case of the respondents.
xxx xxx xxx
37. On the effect of Section 430 of the Act, the Apex Court in Shashi
Prakash Khemka v. NEPC Micon Ltd., (2007 SCC OnLine SC 17),
after having noted all the earlier decisions, held as follows:
“5. 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.
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.”
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 being
conducted in a manner oppressive to any member or members
including any one or more of those applying. The court then has
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thinks fit, if it comes to the conclusion that the affairs of the
company are being conducted in a manner oppressive to any
member or members and that wind up the company would unfairly
prejudice such member or members, but that otherwise the facts
might justify the making of a winding up order on the ground that it
was just and equitable that the company should be wound up. The
law however has not defined what is oppression for purposes of
this section, and it is left to courts to decide on the facts of each
case whether there is such oppression. as calls for action under this
section.
16. We may in this connection refer to four cases where the new s.
210 of the English Act came up for consideration, namely,
(1) Elder v. Elder and Watson (1), (2) George Meyer v. Scottish
Cooperative Wholesale Society Ltd. (2), (3) Scottish Co-operative
Wholesale Society Ltd. v. Meyer (3), which was an appeal
from Meyer’s case (2), and (4) Re. H. R. Harmer Limited. Among
the important considerations which have to be kept in view in
determining the scope of s. 210, the following matters were stressed
in Elder‘s case (1) as summarised at p. 394 in Meyer’s case (2):
“(1) The oppression of which a petitioner complains must relate
to the manner in which the affairs of the company concerned are
being conducted; and the conduct complained of must be such
as to oppress a minority of the members (including the
petitioners) qua shareholders.
(2) It follows that the oppression complained of must be shown
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.
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(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 oppression may arise being so infinitely various that it is
impossible to define them with precision”. The circumstances must
be such as to warrant the inference that “there had been, at least,
an unfair abuse of powers and an impairment of confidence in the
_probity with which the company’s affairs are being conducted, as
distinguished from mere resentment on the part of a minority at
being outvoted on some issue of domestic policy”. The phrase
“oppressive to some part of the members” suggests that the
conduct complained of “should at the lowest involve a visible
departure from the standards of fair dealing, and a violation of the
conditions of fair play on which every shareholder who entrusts his
money to a company is entitled to rely. … But, apart from this, the
question of absence of mutual confidence per se between partners
or between two sets of shareholders, however relevant to a winding
up seems to have no direct relevance to the remedy granted by S.
210. It is oppression of some part of the shareholders by the
manner in which the affairs of the company are being conducted
that must be averred and proved. Mere loss of confidence or pure
deadlock does not come within s. 210. It is not lack of confidence
between shareholders per se that brings s. 210 into play, but lack of
confidence springing from oppression of a minority by a majority
in the management of the company’s affairs, and oppression
involves at least an element of lack of probity or fair dealing to a
member in the matter of his proprietary rights as a shareholder.”
20. These observations from the four cases referred to above apply
to s. 397 also which is almost in the same words as s. 210 of the
English Act, and the question in each case is 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
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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 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 shareholder.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 determination of procedure not
provided for already in accordance with the principles of natural justice;
Rules 39 and 40 provide for production of evidence; Rule 43 empowers the
Tribunal to call for further 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.
19. The appellant contends that the dicta of the Supreme Court in Aruna
Oswal v. Pankaj Oswal Civil Appeal No. 9340/2019, would not be
applicable as that dealt with the locus standi of the petitioner whose
infinitesimal shareholding was yet to be determined. Whereas in the
present case, the process of election to the Board of Directors/Members of
the Apex Council, has been challenged because of it being allegedly
contrary to the procedure laid down in the AoA and the notice calling for
the AGM, and that the elections were held on the basis of a voice vote
instead of paper ballot, contrary to what was mentioned in the AGM
notice.”
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22. From the extensive discussions and conclusions in the aforementioned
judgments, the inevitable conclusion is that Section 430 of the 2013 Act bars
the jurisdiction of the Civil Court in matters falling in the domain of NCLT,
which it is empowered to adjudicate under different provisions of the Act
and these powers are wider and broader than the powers of the Civil Court
under Section 9 CPC, being a specialised Tribunal created for the purpose of
regulating adjudication of the affairs of the companies expeditiously as
observed in SAS Hospitality Pvt. Ltd. (supra).
23. Coming now to the Scheme of the 2013 Act, Section 241(1)(a)
enables any member of a company to file an application before NCLT
complaining that affairs of the company have been or are being conducted in
a manner prejudicial to public interest or are prejudicial or oppressive to him
or any member or members or to the interests of the company. In Jai Kumar
Arya (supra), the Division Bench observed that amplitude of the words used
in Section 241(a) 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
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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 eligibility
under Section 244(a) of having 10% of total strength of RCL which has
4000 members, they are not eligible to apply under Section 241. While it is
conceded that proviso to Section 244(1)(a) and (b) empowers the Tribunal,
on an application made in this behalf, to waive the eligibility requirements,
the argument is that various orders passed by NCLT in the past including an
order in the case where RCL was a party, NCLT invariably declines to
waive the eligibility condition and therefore approaching the NCLT would
be a futile exercise and in this context, heavy reliance was placed on the
judgments of the Division Benches of Calcutta High Court in Eastern
Indian Motion Picture Association (supra), and this Court in Jai Kumar
Arya (supra).
25. I am afraid I cannot accept this contention of the Plaintiffs in light of
the bar under Section 430 and the settled law on this aspect adumbrated in
the aforementioned judgments. It is true that Section 244 provides the
threshold eligibility criteria for members of a company to apply under
Section 241 and Section 244(1)(a) requires in case of a company with share
capital, a threshold criteria of 100 shareholders or 1/10th strength of total
members and in the present case, the suit is filed by 5 members out of the
total strength of 4000 members and Plaintiffs do not meet the threshold
criteria. However, the proviso clearly empowers NCLT to waive all or any
requirement specified in Section 244(1)(a) and (b). Therefore, the remedy of
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the Plaintiffs is to apply before NCLT under Section 241 and seek a waiver
under the said proviso. For easy of reference, Section 244 of the 2013 Act is
extracted hereunder:
“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) 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 jurisdiction of NCLT. In the earlier
part of the judgment, the reliefs sought have been extracted and for the ease
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of reference, I may only highlight the allegations in the plaint being: (a)
Defendants No. 2 to 10 along with two others were elected as Executive
Committee of RCL for one year expiring on 30.09.2023 in terms of Clause
43 of MoA and the tenure could not be extended in terms of Clause 44 but
they have continued unlawfully and are not permitting fresh elections; (b)
misappropriation of assets; (c) diversion of funds; (d) wrongful financial
exploitation of RCL accounts and malfeasance; (e) impersonation and
misrepresentation by Defendants of continuing as Executive Committee; and
(f) making unauthorized deals/compromises with DDA in respect of 23
acres of land of RCL etc. Each of these issues relate to oppression and
mismanagement and/or elections and clearly fall within the scope of
NCLT’s jurisdiction thus barring the jurisdiction of this Court.
27. Insofar as the judgment of the Division Bench of this Court in Jai
Kumar Arya (supra) is concerned, reliance by the Plaintiffs is not
understood as the judgment does not inure to their advantage. The prime
issue for consideration before the Division Bench was a notice by Defendant
No. 1 to the shareholders/Directors of the Petitioner company notifying a
date for holding an EGM, which sparked a number of litigations. The Court
came to a conclusion on the facts of the case that the dispute with respect to
the said notice was not amenable to adjudication by NCLT either under
Section 169(4) or Section 241 but insofar as Section 430 is concerned, the
Court noted that there was a bar for the Civil Court to adjudicate issues,
where NCLT was empowered to exercise jurisdiction and in fact in
paragraph 13 of the judgment, Court took note of the fact that insofar as
allegations of oppression and mismanagement of the affairs by Plaintiff
No. 1 therein were concerned, the petition was pending before NCLT and
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would not impact the adjudication of the appeal. With respect to the
judgment of the Division Bench of the Calcutta High Court, I may say with
all due respect, this Court is not persuaded to follow the said view in light of
the judgments of the Supreme Court as also Division Bench of this Court
and several Co-ordinate Benches reiterating and reinforcing the embargo
under Section 430. With respect, it cannot be anticipated at this stage that if
Plaintiffs were to approach NCLT, their application for waiver would
necessarily be rejected and thus on the basis of mere speculation, this suit
cannot be entertained. Moreover, this Court also respectfully differs with the
view taken that when the NCLT declines to grant waiver of the threshold
eligibility condition, Plaintiffs will have to fall back to a remedy before the
Civil Court inasmuch as if the NCLT declines to grant waiver, for the sake
of arguments, Plaintiffs have a remedy of statutory appeal under Section 421
of the 2013 Act before NCLAT.
28. For all the aforesaid reasons, Court agrees and upholds the
preliminary objection that the suit is not maintainable as the remedy of the
Plaintiffs lies in approaching NCLT. Accordingly, the plaint is rejected
leaving the Plaintiffs to avail their remedies in accordance with law before
the NCLT, making it clear that this Court has neither entered into nor
expressed any opinion on the merits of the case.
JYOTI SINGH, J
APRIL 15 , 2025/shivam
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