Bombay High Court
Sardesai Engineering Private Limited ... vs Mahadeo Appasaheb Jagtap And Ors on 22 January, 2024
Author: Amit Borkar
Bench: Amit Borkar
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AGK
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
CIVIL REVISION APPLICATION NO.141 OF 2022
Sardesai Engineering Pvt. Ltd. & Ors. ... Applicants
V/s.
Mahadeo Appasaheb Jagtap & Ors. ... Respondent
Mr. Simil Purohit i/by Mr. Sumit Kothari for the
applicants.
Mr. Zal T. Andhyarunjina, Senior Advocate with Mr.
Aman Kacheria, Mr. Jahaan Dastur, Mr. Neel Kothari,
Mr. Rishabh Dhannuka, Ms. Sakshi Dube and Ms.
Krushika Udeshi i/by Mr. Neel Kothari for respondent
No.1.
CORAM : AMIT BORKAR, J.
DATED : JANUARY 22, 2024
P.C.:
1. The applicants/original defendants are challenging the
orders dated 9 March 2022 passed by the City Civil Court,
Mumbai, rejecting the application under Order 7 Rule 11 of the
Code of Civil Procedure, 1908.
2. Respondent No.1/Director (not a shareholder) of applicant
No.1 filed Suit No.533 of 2021 challenging the special resolution
passed in the Extra Ordinary General Meeting dated 2 September
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2020 resolving that applicant No.2 and applicant No.6 appointed
as directors of applicant No.1/company be declared as null and
void, non-est and bad in law; board meeting dated 21 December
2020 resolving to call an extraordinary general meeting on 19
January 2021 for removal of directors including respondent No.1
be declared as illegal, non-est and bad in law; board meeting
dated 5 January 2021 resolving to appoint respondent Nos.5 to 13
and one Santosh Borade as additional director of applicant
No.1/company be declared as illegal, non-est and bad in law;
special resolution passed in extraordinary general meeting dated
19 January 2021 resolving to remove respondent No.1 as director
of applicant No.1/company be declared as illegal, non-est and bad
in law.
3. The plaintiff/respondent No.1 claims to be one of the first
directors of applicant No.1/company and was nominated by one
Raviraj Takawane, who had entered into a contract to purchase
100% shares of applicant No.1/company. According to the
plaintiff, he filed suit in his capacity as one of the first directors of
defendant No.1/company aggrieved by the actions and inactions
of defendants Nos.2 to 17. According to the plaintiff, the subject
matter of the suit does not fall within the jurisdiction of the
National Company Law Tribunal, Mumbai, as the oppressive acts
and mismanagement of affairs of applicant No.1/company cannot
be agitated without complying with the requirements of the
provisions of the Companies Act, 2013. In his capacity as a
director, he cannot approach the Tribunal set up under Sections
241 and 242 of the Companies Act 2013, and only the Civil Court
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has jurisdiction to grant reliefs prayed by the plaintiff.
4. The applicants filed Notice of Motion No.2448 of 2021 under
Order 7 Rule 11 of the Code of Civil Procedure, 1908, for rejection
of plaint mainly on the ground that the suit is barred by Section
430 of the Companies Act, 2013.
5. The Trial Court rejected the notice of motion mainly on the
grounds that the averments in the plaint disclose claim of
ownership, transfer of share or alleged oppression or
mismanagement. In substance, plaintiff is not challanging his
removal as director of the Company, but only the resolution to
appoint additional directors. Nothing in Section 430 of the
Companies Act 2013 indicates that such issue can be tried by the
National Company Law Tribunal. The suit involves a dispute
between a director and the Company, and a suit for the
enforcement of such right is maintainable.
6. The defendants, therefore, filed a present civil revision
application challenging the order of rejection of the notice of
motion for rejection of the plaint.
7. Mr. Simil Purohit for the applicants submitted that the
Companies Act 2013 replaced the Companies Act 1956. The Old
Act of 1956 did not provide the constitution of the Company Law
Tribunal, and thus, all disputes under the Old Act were subject to
the jurisdiction of the Civil Court. However, the Act of 1956 was
amended to constitute a Company Law Tribunal to try the disputes
enumerated in the notification. The amendment did not provide
for exclusive jurisdiction of the Company Law Tribunal. Hence, the
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jurisdiction of the Civil Court was not ousted in the absence of a
specific provision to that effect.
8. It is submitted that Section 430 of the Companies Act 2013
came into force only on 1 June 2016, whereby the National
Company Law Tribunal came to be constituted. Section 430 of the
new Act specifically bars the Civil Court's jurisdiction to entertain
any suit or proceedings concerning any matter which the Tribunal
or Appellate Tribunal is empowered to decide by or under said Act.
In view of such a specific ouster, the Civil Court's jurisdiction to
decide issues raised in the suit is barred.
9. It is submitted that the expression 'member' occurring in
Sections 241 and 242 has to be given wider meaning to include
any person who alleges mismanagement or oppression. Though
respondent No.1 is not a member, he can apply for exemption in
terms of proviso to Section 244. Even if respondent No.1 is not a
shareholder or a member as defined under Section 2(55) of the
Act, in view of the judgment of this Court in Appeal From Order
No.363 of 2022 (Manish Kumar v/s. Topworth Urja & Metals
Limited & Ors.) decided on 19 April 2022, he can approach
Tribunal under 214 of Act of 2013.
10. It is submitted that Respondent No.1 is not espousing the
cause in his capacity as a director, but the suit is filed to espouse
the cause of a member. Respondent No.1 claims to represent a
member in substance, the plaintiff alleges a breach of the
member's right and, therefore, the National Company Law
Tribunal has exclusive jurisdiction.
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11. It is submitted that the impugned order is erroneous based
on following three reasons: (a) the judgment in the case of Zee
Enterprises Ltd. v. Invesco Developing Markets Funds &
Ors. in Interim Application (L) No.22525 of 2021 in Suit (L)
No.22522 of 2021 has been over-ruled by the Division Bench of
this Court and, therefore, the impugned order based on over-ruled
judgment is erroneous; (b) The findings recorded by the Trial
Court that there is no allegation in the plaint alleging oppression
and mismanagement is factually incorrect; and (c) bar contained
in Section 430 of 2013 Act is squarely applicable to the subject
matter of the suit as the National Company Law Tribunal or
National Company Law Appellate Tribunal can decide the issues
raised in the suit. In support of his contentions, he relied on the
judgment in the case of Manish Kumar (supra), which has held
that a wider interpretation of the word "member" is indicated in
the proviso appended to Section 244. The Legislature intended
that every matter revolving around the affairs of the Company, by
whosoever it is brought forth before the Tribunal, shall be
entertained by it, and the jurisdiction of the Civil Court shall be
ousted.
12. Per contra, Mr. Zal T. Andhyarunjina learned senior advocate
on behalf of respondent No.1 submitted that National Company
Law Tribunal or the National Company Law Appellate Tribunal
cannot address the directorial disputes under the Companies Act,
2013. The plaintiff's suit cannot be characterized as suit on behalf
of a member or as a representative of the member.
13. It is submitted that the judgment in the case of Manish
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Kumar (supra) is per incuriam for the following reasons: (a) it is
contrary to the clear statutory language of the Companies Act,
2013, namely, the language of Section 2(55) read with Sections
241-242 which clearly prescribe that only persons defined as
members can exercise the rights under Sections 242-242; (b) the
said judgment insofar as it suggests that persons other than those
defined as members under Section 2(55) of the Companies Act,
2013 can avail of the remedies under Sections 241-242 which
clearly prescribe that they are available to only "members" is
clearly contrary to the express and unequivocal statutory language
of the Companies Act, 2013; (c) the said judgment is also contrary
to the judgments of the Bombay High Court in Abdul Waheed
and Yes Bank, both of which are authorities for the proposition
that directorial dispute do not fall within the purview of NCLT.
14. It is submitted that the principle of per incuriam has been
fully set out in numerous judgments of the Apex Court. One such
judgment is in the case of Fuerst Day Lawson Ltd v. Jindal
Exports Ltd., reported in (2001) 6 SCC 356, in which the
Supreme Court discussed the concept of 'per incuriam'. Another
judgment dealing with the said concept is in the case of State of
U.P. & Anr. v. Synthetics & Chemicals Ltd. & Anr. reported
in (1991) 4 SCC 139. He also relied on the judgment in the case of
Mamleshwar Prasad v. Kanhaiya Lalli reported in 1975 (2)
SCC 232 and Madhya Pradesh Rural Road Development
Authority & Anr. v. L.G. Chaudhary Engineers &
Contractors reported in (2012) 3 SCC 495.
15. Learned senior advocate submitted that the said judgment
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fails to give any reason why the context otherwise requires a
member to be construed differently from the definition of
'member' given in Section 2(55) of the Companies Act, 2013. No
such context could otherwise require a member to be construed
differently. It is settled law that actions under Sections 241-242
(i.e. applicants in case of oppression) are quintessentially
members' actions and raise disputes between members and groups
of members within the Company. The judgment makes findings
inconsistent with the plain language of Section 244 of the Act of
2013. The plain language of Section 244 provides that there may
be a waiver of matter specified in Section 244(a) and (b) but not
241(a) and (b). It is one more reason to uphold the judgment as
per incuriam.
16. In any event, the judgment of the Single Judge is in
ignorance of the judgment of the Single Judge of this Court in
Abdul Wahid Abdul Gafoor Khatru & Ors. v. Safe Heights
Developers Pvt. Ltd. & Ors. reported in 2018 SCC OnLine
Bom. 693 and Yes Bank v. Madhu Ashok Kapur & Ors.
reported in 2015 (3) All MR 820. In conclusion, he submitted that
the judgment of the Single Judge in Manish Kumar (supra) is in
ignorance of the judgment in the case of Howrah Trading Co.
Ltd. v. Commissioner of Income Tax, Central, Calcutta
reported in AIR 1959 SC 775 and KillichNixon Ltd. & Ors. v.
Bank of India & Ors. reported in 1983 (2) Bom. C.R. 631.
17. Without prejudice to the above submissions, learned senior
advocate submitted that in the event this Court holds that the
judgment of the Single Judge is not per incuriam, it is necessary to
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refer the same for reconsideration to the Larger Bench in the
exercise of powers conferred under Rule 7 and 8 of the Bombay
High Court Appellate Side Rules, 1960.
18. Considering the submissions made by the parties, it would be
necessary to set out relevant provisions of the Companies Act 1956
and the Companies Act 2013. Relevant provisions being Sections
2(55), 430, 241, 242, 244 read thus:
"2(55). "member", in relation to a company, means--
(i) the subscriber to the memorandum of the
Company who shall be deemed to have agreed to become
member of the Company, and on its registration, shall be
entered as member in its register of members;
(ii) every other person who agrees in writing to
become a member of the Company and whose name is
entered in the register of members of the Company;
(iii) every person holding shares of the Company and whose
name is entered as a beneficial owner in the records of a
depository;
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.
241. Application to Tribunal for relief in cases of
oppression, etc.
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(1) Any member of a company who complains that--
(a) the affairs of the Company have been or are
being conducted in a manner prejudicial to public interest or
in a manner prejudicial or oppressive to him or any other
member or members or in a manner prejudicial to the
interests of the Company; or
(b) the material change, not being a change brought
about by, or in the interests of, any creditors, including
debenture holders or any class of shareholders of the
Company, has taken place in the management or control of
the Company, whether by an alteration in the Board of
Directors, or manager, or in the ownership of the Company's
shares, or if it has no share capital, in its membership, or in
any other manner whatsoever, and that by reason of such
change, it is likely that the affairs of the Company will be
conducted in a manner prejudicial to its interests or its
members or any class of members,
may apply to the Tribunal, provided such member has
a right to apply under section 244 for an order under this
Chapter.
(2) The Central Government, if it is of the opinion that
the affairs of the Company are being conducted in a manner
prejudicial to public interest, it may itself apply to the
Tribunal for an order under this Chapter.
Provided that the applicants under this sub-section, in
respect of such Company or class of companies, as may be
prescribed, shall be made before the Principal Bench of the
Tribunal which shall be dealt with by such Bench.
(3) Where in the opinion of the Central Government
there exist circumstances suggesting that--
(a) any person concerned in the conduct and
management of the affairs of a company is or has been in
connection therewith guilty of fraud, misfeasance, persistent
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negligence or default in carrying out his obligations and
functions under the law or of breach of trust;
(b) the business of a company is not or has not been
conducted and managed by such person in accordance with
sound business principle or prudent commercial practices;
(c) a company is or has been conducted and managed
by such person in a manner which likely to cause, or has
caused, serious injury or damage to the interest of the trade,
industry or business to which such Company pertains; or
(d) the business of a company is or has been conducted
and managed by such person with intent to default its
creditors, members or any other person or otherwise for a
fraudulent or unlawful purpose or in a manner prejudicial to
public interest,
the Central Government may initiate a case against
such person and refer the same to the Tribunal with a
request that the Tribunal may inquire into the case and
record a decision as to whether or not such person is a fit
and proper person to hold the officer of director or any other
office connected with the conduct and management of any
company.
(4) The person against whom a case is referred to the
Tribunal under sub-section (3), shall be jointed as a
respondent to the application.
(5) Every application under sub-section (3)--
(a) shall contain a concise statement of such
circumstances and materials as the Central Government may
consider necessary for the purpose of the inquiry; and
(b) shall be signed and verified in the manner laid
down in the Code of Civil Procedure (5 of 1908), for the
signature and verification of a plaint in a suit by the Central
Government
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242. Powers of Tribunal.
(1) If, on any application made under section 241, the
Tribunal is of the opinion--
(a) that the Company's affairs have been or are being
conducted in a manner prejudicial or oppressive to any
member or members or prejudicial to public interest or in a
manner prejudicial to the interests of the Company; and
(b) that to wind up the Company would unfairly
prejudice such member or members, but that otherwise the
facts would justify the making of a winding-up order on the
ground that it was just and equitable that the Company
should be wound up,
the Tribunal may, with a view to bringing to an end the
matters complained of, make such order as it thinks fit.
(2) Without prejudice to the generality of the powers
under sub-section (1), an order under that subsection may
provide for--
(a) the regulation of conduct of affairs of the Company
in future;
(b) the purchase of shares or interests of any members
of the Company by other members thereof or by the
Company;
(c) in the case of a purchase of its shares by the
Company as aforesaid, the consequent reduction of its share
capital;
(d) restrictions on the transfer or allotment of the
shares of the Company;
(e) the termination, setting aside or modification, of
any agreement, howsoever arrived at, between the Company
and the managing director, any other director or manager,
upon such terms and conditions as may, in the opinion of the
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Tribunal, be just and equitable in the circumstances of the
case;
(f) the termination, setting aside or modification of any
agreement between the Company and any person other than
those referred to in clause (e):
Provided that no such agreement shall be terminated,
set aside or modified except after due notice and after
obtaining the consent of the party concerned;
(g) the setting aside of any transfer, delivery of goods,
payment, execution or other Act relating to property made or
done by or against the Company within three months before
the date of the application under this section, which would,
if made or done by or against an individual, be deemed in his
insolvency to be a fraudulent preference;
(h) removal of the managing director, manager or any
of the directors of the Company;
(i) recovery of undue gains made by any managing
director, manager or director during the period of his
appointment as such and the manner of utilisationutilisation
of the recovery including transfer to Investor Education and
Protection Fund or repayment to identifiable victims;
(j) the manner in which the managing director or
manager of the Company may be appointed subsequent to an
order removing the existing managing director or manager of
the Company made under clause (h);
(k) appointment of such number of persons as
directors, who may be required by the Tribunal to report to
the Tribunal on such matters as the Tribunal may direct;
(l) imposition of costs as may be deemed fit by the
Tribunal;
(m) any other matter for which, in the opinion of the
Tribunal, it is just and equitable that provision should be
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made.
(3) .......................................
(4) .......................................
(4A) ........................................
(5) .........................................
(6) .........................................
(7) ...........................................
(8) ..........................................
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.
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(2) Where any members of a company are entitled to
make an application under subsection (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."
19. Section 41 of the Companies Act, 1956 reads thus:
"41. DEFINITION OF "MEMBER"
(1) The subscribers of the memorandum of a company
shall be deemed to have agreed to become members of the
Company, and on its registration, shall be entered as
members in its register of members.
(2) Every other person who agrees in writing to become a
member of a company and whose name is entered in its
register of members shall be a member of the Company.
(3) Every person holding equity share capital of Company
and whose name is entered as beneficial owner in the
records of the depository shall be deemed to be a member of
the concerned Company."
20. Learned Single Judge in Manish Kumar (supra) in
paragraph 15 held as under:
"15. If any person, who is interested in the affairs of the
Company and who alleges mismanagement or oppression, he
shall not be restrained from knocking the doors of the
Tribunal merely because the words employed in Section 241;
as 'any member' and under Section 242, the Tribunal is
expected to exercise it's power upon an application preferred
under Section 241 i.e. by any member of the Company. If the
intention of the Legislature was to create a special Fora, in
the form of a quasi judicial authority incorporated for
dealing with the corporate disputes that are of civil nature
arising under the Companies Act, particularly, the complaints
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in relation to the affairs of the Company, alleging that they
are conducted in a manner prejudicial to the public interest
or prejudicial or oppressive to the complainant or any other
member or members or prejudicial to the interest of the
Company itself, there is no reason why the plaintiff, who
alleges mismanagement and oppression, cannot approach
the Tribunal. The words 'any member' if read constrictively
and confining it only to member as defined, would result in
defeating the intention of law makers, who created the
special Tribunal with exclusive jurisdiction only for corporate
and reduce the multiplicity of litigation before different
forums, including civil courts and to provide justice at close
range. On it's creation, the jurisdiction of civil Court is
ousted, to consider any suit or proceeding with reference to
any matter, which the Tribunal or Appellate Tribunal is
empowered to."
21. Learned Single Judge thereafter concurred with the view of
Madras High Court observing in paragraph 18 as under:
"18. Another reason, which justifies the wider interpretation
of the word 'member' is, indicated in proviso appended to
Section 244, where the Tribunal may waive all or any of the
requirements specified in clause (a) or clause (b) of Section
241, so as to enable the members to apply to it under Section
241 claiming relief in case of oppression, etc. The
Legislature, therefore, intended that every matter revolving
around the affairs of the Company, by whosoever it is sought
to be brought forth before the Tribunal, shall be entertained
by it and the jurisdiction of the civil Court shall be ousted. In
the wake of the above, I do not find any legal infirmity in the
impugned order refusing ad-interim relief to the plaintiff."
22. Learned senior advocate for the respondent No.1 submitted
that the judgment of learned Single Judge in case of Manish
Kumar (supra) is per incuriam as the said judgment has ignored
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earlier binding precedent of the Apex Court in Howrah Trading
(supra) and Division Bench judgment of this Court in Killick
Nixon (supra).
23. It is, therefore, necessary to consider the judgment in the
case of Howrah Trading (supra). In the said case, the Apex
Court was considering an appeal arising out of the Income Tax
Reference wherein the applicant received various sums as income
from dividends. The shares for which the dividend income was
received were the applicant's property, but the books of various
companies stood in the name of other persons. The applicant
purchased shares of those companies, but transfers were not
registered with various companies. The applicant, therefore,
claimed that though the shares of such companies were not
registered in the name of the applicant, it was property of the
applicant and, therefore, the dividend income should be gross
deducted under Section 16(2) and credit for tax deducted should
be allowed. In the said context, the Apex Court observed that a
glance at the scheme of the Indian Companies Act, 1913 shows
that the words 'member, 'shareholder' and 'holder of a share' have
been used interchangeably in that Act and the right of transfer is
only to call upon the Company to register his name and no more.
No rights arise till such registration takes place. The Apex Court in
conclusion held that the position under the Indian Companies Act,
1913 is quite clear that expression 'shareholder' or 'holder of a
share' in so far as that Act is concerned, denotes no other person
except a 'member'. It is further held that even for the Indian
Companies Act of 1913, the words 'member' and 'shareholder' can
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be read as synonymous.
24. In the case of Balkrishan Gupta & Ors. v. Swadeshi
Polytex Ltd. & Anr. reported in (1985) 2 SCC 167, the Apex
Court was considering the interpretation of Section 169 of the
Companies Act, 1956. In that context, the Apex Court, in
paragraph 17 held as under:
"17. In the Act, the expressions 'a member', 'a share holder'
or 'holder of a share' are used as synonyms to indicate the
person who is recognised by a company as its owner for its
purposes. What does ownership of a share connote?
'Ownership in it most comprehensive signification", says
Salmond, "denotes the relation between a person and any
right that is vested in him. That which a man owns in this
sense is a right. The right of ownership comprises benefits
like claims, liberties, powers, immunities and privileges and
burdens like duties, liabilities, disabilities. Whatever
advantages a man may have as a result of the ownership of a
right may be curtailed by the disadvantages in the form of
burdens attached to it. As observed by Dias, an owner may
be divested of his claims etc. arising from the right owned to
such an extent that he may be left with no immediate
practical benefit. He remains the owner nonetheless because
his interest will outlast that of other persons in the thing
owned. The owner possesses that right which ultimately
enables him to enjoy all rights in the thing owned by
attracting towards himself those rights in the thing owned
which for the time being belong to others, by getting rid of
the corresponding burdens. An owner of a land may get rid
of the interest of a mortgagee in it by redeeming the
mortgage, may get physical possession of land by
terminating a lease and may get rid of an attachment by
discharging the debt for which it is attached. A Receiver
appointed by a court or authority in respect of a property
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holds it for the benefit of the true owner subject to the orders
that may be made by such Court or authority. the different
kinds of rights of ownership flowing from the ownership of a
right depend upon the nature of the right owned. A person
who is a shareholder of a company has many rights under
the Act. Some of them, with which we are concerned in this
appeal principally, are (i) the right to vote at all meetings
(Section 87), (ii) the right to requisition an extraordinary
general meeting of the Company or to be a joint
requisitionist (Section 169), (iii) the right to receive notice of
a general meeting (Section 172), (iv) the right to appoint
proxy and inspect proxy registers (Section 176), (v) in the
case of a body corporate which is a member, the right to
appoint a representative to attend a general meeting on its
behalf (Section 187), and (vi) the right to require the
Company to circulate his resolution (Section 188). The
question for consideration is when does a shareholder cease
to be entitled to exercise any of these rights?"
25. In M/s. World Wide Agencies Pvt. Ltd. & Anr. v.
Margarat T. Desor & Ors. reported in (1990) 1 SCC 536, the
Apex Court was considering question as to maintainability of
petition under Sections 397 and 398 of the Companies Act, 1956
at the instance of persons who were not members of the Company
as their names were not recorded in the register of members. The
legal heirs of deceased shareholders had filed the petition. The
Apex Court considered whether legal heirs of deceased members
could be treated as 'members' of the Company to maintain the
petition under Sections 397 and 398. In the context of said
question, the Apex Court observed that it is true that one must be
a member, and Section 41 of the Act provides that a member of a
company is a person who has applied in writing and whose name
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is entered in the register of members is entitled to move petition.
In the said context, it is observed that the member may be
different from the holder in some situations and contingencies. A
member may be a shareholder, but a holder may not be a member.
Therefore, the Apex Court held that legal representatives of
deceased members are entitled to maintain a petition under
Sections 397 and 398 of the Act.
26. The Division Bench of this Court in Killick Nixon (supra)
was considering whether a member of a company who had
transferred his shareholding to another person but whose name
continues to be on the register of members of the Company can
maintain a petition under Sections 397 and 398. In the said
context, the Division Bench held that Section 397, in plain
language, states that a petition can be filed by any member or
member/s of the Company. They can file such petitions if the
affairs of the Company are being conducted in a manner
prejudicial to the public interest or in a manner that may be
oppressive to any member. Such persons who are being oppressed
may or may not include petitioning members. A member of the
Company can file a petition under Section 398. The Division Bench
held that the Companies Act does not contemplate a member with
no share in the Company. It is also held that the Company
recognises only the person who is a member as a shareholder. In
other words, the rights that may exist between the Company and
its members or shareholders can be exercised only by members.
Similarly, the Company can only look to its members to discharge
their obligations to the Company as its shareholders.
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27. In the case of Abdul Wahid Abdul Gafoor Khatru
(supra), Single Judge of this Court was concerned with powers of
Company Law Board under Sections 397 and 398 of the
Companies Act, 1956. The learned Single Judge held that
directorial disputes are beyond jurisdiction of Company Law Board
under Section 397. It is also held that the appointment and
duration of directions is a matter beyond scope of jurisdiction of
the Company Law Board.
28. In the case of Santosh Potdar (supra), the plaintiffs had
filed a suit seeking a declaration that the 1st defendant had ceased
to be a director of 3rd defendant/company and for declaration that
meeting held were illegal and non-est. The City Civil Court
returned the plaint. On a reference made by the Single Judge of
this Court, Division Bench of this Court held that Companies Act,
1956 has not prescribed the forum where reliefs in relation to
irregularities in holding meeting or cessation of office of director
can be decided. In the absence of such prescription, ordinary Civil
Courts are competent to deal with directorial disputes.
29. Conspectus of the aforementioned judgments leads to the
conclusion that under the provisions of the Companies Act 1956,
the words 'member' and 'shareholder' can be read as synonymous
Act of 1956 does not contemplate a member who has no share in
the Company; The directorial disputes with reference to the
Companies Act, 1956 need to be decided by ordinary Civil Courts.
Under Indian Companies Act, 1913 the words 'member,
'shareholder' and 'holder of a share' have been used
interchangeably. The expression 'shareholder' or 'holder of a share'
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in the Act of 1913 denotes no other person except a 'member'.
30. Therefore, the question remains as to whether the judgment
rendered by the learned Single Judge of this Court in Manish
Kumar (supra) is per incuriam. The Latin phrase 'per incuriam'
means through inadvertence. A decision can generally be said to
be given per incuriam when the Court has acted in ignorance of a
previous decision of its own or has acted in ignorance of the
decision of the Supreme Court. A prior decision of the High Court
on identical facts and law by the High Court on the same point of
law in a later case. In exceptional instances, where obvious
inadvertence or oversight, a judgment fails to notice a plain
statutory provision or obligatory authority running counter to the
reasoning and result reached, the principle of per incuriam may
apply. Unless it is a glaring case of obtrusive omission, it is not
desirable to depend on the principle of judgment per incuriam
unless it is shown that some part of the decision was based on
demonstrably wrong reasoning [see Fuerst Day Lawson Ltd
(supra)].
31. A Constitution Bench judgment in National Insurance
Co. Ltd. v. Pranay Sethi reported in (2017) 6 SCC 680 lays
down parameters for the course to be followed on the bindingness
of previous coordinate Bench judgment and explains the concept
of binding precedent. The Constitution Bench of the Apex Court
held that an earlier decision may seem to be incorrect to a Bench
of coordinate jurisdiction considering the question later, on the
ground that a possible aspect of the matter was not considered or
not raised before the Court or more aspects could have been gone
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into by the Court deciding the matter earlier. However, it would
not be a reason to say that the decision was rendered per incuriam
and liable to be ignored. It is observed that the earlier judgment
may seem incorrect, yet it will have a binding effect on the later
Bench of the coordinate jurisdiction. The easy course of saying that
an earlier decision was rendered per incuriam is not permissible,
and the matter will have to be resolved only in two ways: either to
follow an earlier decision or refer the matter to the Larger Bench
to examine the issue, in case it is felt that earlier decision is not
correct on merits. Judicial decorum and discipline are paramount;
therefore, the coordinate Bench must respect the judgments and
orders passed by the other coordinate Bench.
32. None of the judgments relied on behalf of respondent No.1
interpreted Sections 241, 242, and 244 read with Section 2(55) of
the Companies Act, 2013. The judgment relied on behalf of
respondent No.1, interpreted erstwhile provisions of the
Companies Act, 1956 or the Indian Companies Act, 1913. The
language of Sections 241 and 242 is not in pari materia with
Sections 397 and 398 of the Companies Act, 1956. The scheme of
Sections 241, 242, and 244, read with Section 2(55) of the
Companies Act, 2013 was not considered by the Supreme Court or
Division bench of this Court. Therefore, the judgment in the case
of Manish Kumar (supra) rendered by the learned Single Judge
cannot be termed as per incuriam.
33. However, it would be necessary to consider an alternative
submission made on behalf of respondent No.1 that the judgment
rendered by the learned Single Judge needs to be referred to the
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Larger Bench.
34. For the purpose of reference, it is necessary to consider
Section 2(55) of the Companies Act, 2013, which defines
'member', in relation to a company. The word "means" used in the
definition clause implies that the definition is exhaustive. However,
such an interpretation is not without an exception. It is an equally
well-settled principle of interpretation that the use of the word
"means" in a statutory definition, notwithstanding the context in
which the expression is defined, cannot be ignored in interpreting
such definition to discover the real purpose of an expression.
35. The Apex Court in S.K. Gupta & Ors. v. K.P. Jain & Ors.
reported in (1979) 3 SCC 54 held that the words in the statute
must bear some meaning as given in the definition in the context
otherwise requires. It is held that the frame of any definition, more
often than not, can be made flexible, but the precision and
certainty in law require that it should not be made loose but
should be kept tight as far as possible. Resort to dictionary
meaning is not required where a definition clause exists. Where in
a definition section of a statute, a word is defined to mean a sure
thing, wherever that word is used in that statute, it shall mean
what is stated in the definition unless the context otherwise
requires. However, where the definition is inclusive, the word
bears not only its ordinary, popular, and natural sense whenever
applicable but also its extended statutory meaning. At any rate,
such an expansive definition should be so construed as not cutting
down the enacting provisions of an Act unless the phrase is
absolutely clear in having the opposite effect. Where, however, the
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definition of an expression in a definition clause is preceded by the
words 'unless the context other requires', normally the definition
given in the section should be applied and given effect. Still, this
normal rule may be departed from if there is something in the
context to show that the definition should not be applied. Besides,
the definition of cognate words should also be seen to arrive at the
true meaning of the word.
36. It is well settled that the definition clause in a section of an
Act is to be given the meaning assigned to that in the definition
clause unless there is anything repugnant in the subject or context.
A definition clause in a statute is a legislative device to avoid
making out provisions of the statute to be cumbersome. Where a
word is defined in the statute, and that word is used in a provision
to which that definition is applicable, the effect is that whether the
word is defined as used in that provision, the definition of the
word gets substituted. (per H.R. Khanna, J. in Indira Nehru
Gandhi (Smt.) vs. Shri Raj Narain & Anr. reported in AIR
1975 SC 2299 (5 Judges)
37. The object of definition is to avoid the necessity of frequent
repetition in describing the subject matter to which the word or
expression so defined is intended to apply. When a word is defined
to mean "to mean" such and such, the definition is prima facie
restrictive and exhaustive, whereas, where the word defined is
declared to "include" such and such, the definition is prima facie
extensive. It is incumbent on those who contend that the definition
given in the interpretation clause does not apply to a particular
section to show that the context, in fact, so requires. It is well
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settled that an argument based on a contrary context, which will
make the inclusive definition inapplicable to any provision in the
Act, cannot be accepted as it would make the definition entirely
useless (see Chowgule and Co. Pvt. Ltd. v. Union of India
reported in (1987) 1 SCC 730).
38. It is also well settled that when the application of the
definition to a term in a provision containing that term makes it
unworkable and impossible, it can be said that the definition does
not apply to that provision because of contrary context. ( see
Special Officer and Competent Authority Urban Land
Ceilings Hyderabad v. P.S. Rao reported in AIR 2000 SC 843).
39. Reference can be made to the judgment of the Apex Court in
this regard in Severn Trent Water Purification v. Chloro
Controls (India) Pvt. Ltd. reported in (2008) 4 SCC 380
wherein the Apex Court was considering locus standi of
contributory of a company to bring winding up petition. The Apex
Court, in the context of Section 439 of the Companies Act, 1956,
observed that a bare reading of Section 439 makes it clear that it is
couched with positive as well as negative words. In contrast,
Section 439 (1) permits any person enlisted therein to present an
application for the winding up of a company. It clarifies that said
provision is "subject to the provisions" of Section 439 and, hence,
the entire section has to be read to consider the right of a person
presenting a petition for winding up. Section 41(2) clarifies that a
person who agrees in writing to become a member of the Company
and whose name is entered in its register of members shall become
a member of the Company. From the scheme of the Act, it is clear
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that the contributory's right to bring winding up must be one
either under Section 439(4)(a) or Section 439(4)(b). The
provisions of the Act must be complied with before presenting a
winding up petition under Section 439(4)(b) of the Act of 1956. If
a person intends to present a petition for the winding up of a
company as a contributory, he/it has to satisfy the Company Court
that his/her case is covered by one of the eventualities
contemplated by Section 439(4)(b) of the Act of 1956.
40. At this stage, it is necessary to consider purport of definition
clause 2(55). For treating a person to be a 'member' under Section
2(55), two essential conditions need to be satisfied: (i) an
agreement in writing to become a member and (ii) an entry in the
register. The two conditions are cumulative as both these
conditions have to be satisfied. If both these conditions are not
satisfied, a person in question cannot claim the status of the
member. The requirement of there being an agreement "in writing"
in sub-clause (ii) of Section 2(55) based on consideration or public
policy could not be waived.
41. An individual membership right is a right to maintain himself
in full membership with all the rights and privileges appurtenant
to that status. This right implies that individual shareholders can
insist on strict adherence to legal Rules. It is the membership right
that confers a particular right to issue in respect of wrong done to
him individually by the Company. It is a member entitled to
enforce his individual rights against the Company conferred under
the provisions of the Companies Act. Prima facie, therefore, it
appears that if a person other than a member of a company is
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conferred with the right to approach the National Company Law
Tribunal or National Company Law Appellate Tribunal alleging
mismanagement, it would render part (any member) of section
241 of Act of 2013 as otiose. The expression "any member" cannot
be interpreted to mean any person.
42. Applying the analogy adopted in Severn Trent Water
Purification (supra), as regards Section 241, the provision starts
with the specific expression "any member". Such words cannot be
interpreted to mean a person other than a member. The provision
of a statute conferring a right in favour of member as a 'person'
defined in a statute cannot be expanded beyond such specific
expression unless the case of "context otherwise requires" is made
out. The context justifying departure from the definition needs to
be specifically made out by a person urging the Court to adopt
such an approach.
43. The interpretation of the provision to Section 244 authorises
the Tribunal to waive all or any of the requirements specified in
clauses (a) and (b), but such exercise of waiver is to enable
"members" to apply under Section 241. Therefore, even the proviso
to Section 244 does not create a right for anyone other than the
'member' to apply under Section 241. Moreover, clauses (a) and
(b) of Section 241 do not include the expression "any member" of
a company who complains "under sub-section (1) of Section 241".
Therefore, the mandate of Section 241 requires a person to be the
'member' for invoking the power of a Tribunal.
44. It is, therefore, necessary that before the final opinion on the
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contentions raised by the parties in the revision is decided on
merit, I am of the opinion that the question of larger importance as
framed under is involved in the present matter, which needs to be
decided by the Larger Bench. It would thus appear to be in tune
with judicial discipline, propriety and prudence to refer the
question to the Hon'ble The Chief Justice for considering
desirability of constituting an appropriate Bench for consideration
of same.
45. The question that I pursue to be of some importance,
formulated based on material and evidence on record and arisen
for an answer, read thus:
"Whether an application under Section 241 at the
instance of a person other than a member of a company
alleging mismanagement and oppression is
maintainable before the National Company Law
Tribunal or National Company Law Appellate Tribunal
for reliefs under Section 242 of the Companies Act
2013?"
46. It is hereby directed that the cause papers of this civil
revision application be transmitted to the Registry for being placed
before the Hon'ble The Chief Justice for appropriate orders.
(AMIT BORKAR, J.)
