Shri Harsh Malhotra vs Shri Lal Chand Malhotra (Since ...
2008 Latest Caselaw 1263 Del

*                   HIGH COURT OF DELHI : NEW DELHI

                 Judgment reserved on: July 28, 2008
               Judgment delivered on : August 7, 2008

+                        R.F. A. No.444/2006

       Shri Harsh Malhotra               .... Appellant
                      Through: Mr. Sanjeev Mahajan, Advocate

                                 versus

       1.      Shri Lal Chand Malhotra (Since deceased)
               Through Legal Representatives
               (A) Smt.Sudha Vadehra
               (B) Shri Rakesh Malhotra

       2.      M/s. Bajaj Auto Ltd.           ...  Respondents
                           Through: Mr. Pankaj Chopra, Advocate for
                                    LRs of Respondent No. 1.
                                    None for Respondent No. 2.
CORAM:

HON'BLE MR. JUSTICE T.S. THAKUR
HON'BLE MR. JUSTICE SUNIL GAUR

1.     Whether the Reporters of local papers may
       be allowed to see the judgment?

2.     To be referred to Reporter or not?

3.     Whether the judgment should be reported
       in the Digest?

SUNIL GAUR, J.

1. Rejection of plaint of the plaintiff/appellant brings him to this

Court in appeal. Defendant/Respondent‟s application under order

VII rule 11 CPC has been allowed vide impugned order dated 14 th

July 2006 and appellant‟s/plaintiff‟s plaint has been held to be

barred by section 111 of the Companies Act, 1956 by the trial

R.F. A. No.444/06 Page 1 Court. In a suit for declaration, permanent and mandatory

injunction, plaintiff/appellant had sought a declaration that fifty

four shares of respondent no.2 transferred by the predecessor in

interest of the plaintiff and the defendant no.1, vide share transfer

deed dated 20th November, 1977 was a forged and fabricated

transaction. Appellant had also sought injunction against

respondent no.2 company to restrain it from further transferring

the aforesaid shares.

2. The stand taken by the appellant/plaintiff before the trial

Court was that the question of share transfer deed dated 20th

November 1977 being forged and fabricated document cannot be

decided without evidence and so the application under order VII

rule 11 of CPC was resisted. Whereas, the stand of the

respondent/defendant before the trial Court was that the tribunal

constituted under section 111 of the Companies Act 1956 has the

exclusive jurisdiction to decide the controversy regarding the title

of shares and so the jurisdiction of the civil Court to entertain such

matters is barred.

3. After having heard both the sides at length and upon perusal

of the record of this case, we find that after the amendment of the

Companies Act, 1956 w.e.f. 31st May, 1991, earlier Section 155 of

the Companies Act stood substituted with Section 111 of the

Companies Act, 1956 and the tenor of both these sections is the

R.F. A. No.444/06 Page 2 same. Trial Court in the impugned order had noticed the scope of

Section 155 of the Companies Act, 1956 and has observed that the

object of Section 155 of the Companies Act (now amended as

Section 111 of the Companies Act) is to provide a remedy in non

controversial matters or in the matters where a quick decision is

necessary and can be rendered in order to obviate irreparable

injury to a party and Section 155 of the Companies Act is ordinarily

not intended for settling controversies necessitating a regular

investigation and in such cases, the company Court can decline to

entertain petition in exercise of its discretionary power and say

that since serious disputes are involved, the proper forum for their

adjudication is a civil Court.

4. The judgment of the Apex Court on this aspect rendered in

the case of M/s. Ammonia Supplies Corporation (P) Ltd V.

M/s Modern Plastic Containers Pvt. Ltd. (AIR 1998 Supreme

Court 3153) has been relied upon by the trial Court. So far, it is so

good for the appellant. However, in the later part of the impugned

order, the trial Court takes a „U‟ turn by being unduly influenced by

order dated 12th April, 2005 of the Company Law Board vide which,

respondent/defendant no.2 was directed to release the bonus

shares to respondent/defendant no.1 in respect of fifty four equity

shares in question. It has been observed by the trial Court in the

impugned order that it cannot sit as an appellate Court over the

R.F. A. No.444/06 Page 3 aforesaid order dated 12th April 2005 of the Company Law Board

and without commenting upon the validity/legality of the order

dated 12th April, 2005 of the Company Law Board, trial Court has

given liberty to the appellant to initiate and pursue appropriate

remedies in appropriate forum. Trial Court has gone to the extent

of observing in the impugned order that if any fraud has been

played upon by respondent/defendant no.1, then appellant/

plaintiff should initiate appropriate proceedings before the

appropriate forum as provided under section 111 of the

Companies Act, 1956.

5. The pertinent observations made in M/s. Ammonia

Supplies Corporation (P) Ltd V. M/s Modern Plastic

Containers Pvt. Ltd. (AIR 1998 Supreme Court 3153), reads

as under:-

"In order to qualify for rectification, every procedure as prescribed under the Companies Act before recording the name in the register of the Company has to be stated to have been complied with by the applicant at least that part as required by the Act and assertion of what not complied with under the Act and rule by the person or authority of the Respondent- company before applicant to claim for the rectification of such register. The Court has to examine on the facts of each case, whether an application is for rectification or something else. So field or peripheral jurisdiction of the Court under it would be what comes under rectification not projected claims under the garb of rectification. So far exercising of

R.F. A. No.444/06 Page 4 power for rectification within its field there could be no doubt the Court as referred under S.155 read with S.2(1) and S.10, it is the Company Court alone which has exclusive jurisdiction. Similarly, under S.146 the „Court‟ refers to the Company Judge which has exclusive jurisdiction to decide matters what is covered under it by itself. But this does not mean by interpreting such "Court‟ having exclusive jurisdiction to include within it what is not covered under it, merely because it is cloaked under the nomenclature rectification does not mean Court cannot see the substance after removing the cloak."

6. The remedy provided under Section 155 (now Section 111) of

the Companies Act, 1956 is summary in nature. What remains to

be seen is as to whether the issue of share transfer deed dated 20 th

November, 1977 being forged and fabricated document can be

adjudicated upon in summary proceedings under section 111 of

the Companies Act. To establish that the share transfer deed in

question is forged and fabricated, evidence is required to be led

which may include the evidence of hand writing expert and the

detailed examination and cross-examination required would

obviously bring out this case from the purview of summary

proceedings and in our considered opinion, the disputed question

of title involved in respect of the shares in question cannot be

decided in summary proceedings as envisaged under Section 111

of the Companies Act, 1956.

7. All that is provided in Section 111 of the Companies Act, 1956

R.F. A. No.444/06 Page 5 is that the company has power to refuse registration and the said

refusal is appealable and as per sub-section 7 of this section, the

Tribunal may decide the question of title of any person, who comes

up in appeal against such refusal. In the instant case, unless and

until, the Appellant gets a declaration from competent Civil Court

that the share transfer deed in question already made in favour of

the Respondent is forged and fabricated, the Appellant has no

basis to approach the Respondent No. 2 company to register the

disputed shares in his favour. Therefore, we are of considered

opinion, the Appellant cannot be relegated to avail of the remedy

under Section 111 of the Companies Act, 1956 at this stage and

the Appellant is well within its right to maintain his civil suit to seek

the declaration as prayed for by him in the present suit. Reliance

placed upon case of Canara Bank vs. Nuclear Power

Corporation of India Ltd. & Others, 1995 (84) Company

Cases 70, by the Respondent is misplaced as in the above said

case, it was held that the Company Law Board did not have the

jurisdiction to decide petition under Section 111 of the Companies

Act, 1956, where persons notified under the Special Court Act,

1992 are involved. Company Law Board‟s order dated 12th April

2005 cannot afford any precedent nor be of any assistance in

determining the controversy in question as in aforesaid order, it is

noticed that no proceedings in any court were pending then in

respect of the shares in question.

R.F. A. No.444/06 Page 6

8. For the aforesaid reasons, appeal of the Appellant is allowed

and impugned order dated 14th July 2006 is set aside and the

application under Order 7 Rule 11 of CPC of the Respondent is

dismissed and the Suit No.72/2005, of the Appellant stands

restored. Trial Court record be sent back.

9. Both the sides are directed to appear before the trial Court on

15th September, 2008 for further proceedings in accordance with

the law. With the aforesaid directions, the appeal stands disposed

of leaving the parties to bear their own costs.

                                              SUNIL GAUR, J




                                              T.S. THAKUR, J

August 7, 2008
DKG




R.F. A. No.444/06                                                Page 7