Telangana High Court
M/S. Crystal Dwellings Private ... vs Surat Singh Malhotra on 4 August, 2022
Bench: P Naveen Rao, G.Radha Rani
IN THE HIGH COURT FOR THE STATE OF TELANGANA
********
CIVIL MISCELLANEOUS APPEAL NOs.274, 281 OF 2022
and Cross Objections No. 24 of 2022
Between:
M/s. Crystal Dwellings Private Limited,
rep.by its Managing Director, Mahesh Kedia,
s/o.Damodarlal, Aged 51 years, occu:Business,
Regd.Office at 14-2-420, Sukhji Lane,
Goshamahal, Near DVS Floor Concepts,
Chaknawadi, Hyderabad.
....Appellant
And
Surat Singh Malhotra s/o.late Jagdish Singh Malhotra,
Aged 65 years, occu: Business, H.No.8-2-608/1/3,
Namdhari Towers, 3rd Floor, Road No.10, Banjara Hills,
Hyderabad others.
...Respondents
JUDGMENT PRONOUNCED ON : 04-08-2022
HON'BLE SRI JUSTICE P.NAVEEN RAO
&
HON'BLE DR. JUSTICE G.RADHA RANI
1. Whether Reporters of Local Newspapers may : YES
be allowed to see the Judgments ? :
2. Whether the copies of judgment may be marked : YES
to Law Reporters/Journals :
3. Whether Their Ladyship/Lordship wish to : No
see fair Copy of the Judgment ? :
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
* HON'BLE SRI JUSTICE P.NAVEEN RAO
&
HON'BLE DR. JUSTICE G.RADHA RANI
+ CIVIL MISCELLANEOUS APPEAL NOs.274, 281 OF 2022
and Cross Objections No. 24 of 2022
%04-07-2022
# M/s. Crystal Dwellings Private Limited,
rep.by its Managing Director, Mahesh Kedia,
s/o.Damodarlal, Aged 51 years, occu:Business,
Regd.Office at 14-2-420, Sukhji Lane,
Goshamahal, Near DVS Floor Concepts,
Chaknawadi, Hyderabad.
....Appellant
Vs.
$ Surat Singh Malhotra s/o.late Jagdish Singh Malhotra,
Aged 65 years, occu: Business, H.No.8-2-608/1/3,
Namdhari Towers, 3rd Floor, Road No.10, Banjara Hills,
Hyderabad others.
...Respondents
!Counsel for the petitioner : Sri A Venkatesh
Counsel for the Respondents: Sri S Ravi,
Senior counsel for M/s. R.S.Associates
<Gist :
>Head Note:
? Cases referred:
(2006) 5 SCC 353
MANU/SCOR/46567/2020
1985 SCC Online AP 55
(2002) 108 Company Cases 516 AP
2018 SCC Online J&K 249
(2019) 18 SCC 569
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
HONOURABLE SRI JUSTICE P.NAVEEN RAO
&
HONOURABLE DR. JUSTICE G.RADHA RANI
CIVIL MISCELLANEOUS APPEAL NOs.274, 281 OF 2022
and Cross Objections No. 24 of 2022
Date : 04.08.2022
CMA No.274 of 2022:
Between:
M/s. Crystal Dwellings Private Limited,
rep.by its Managing Director, Mahesh Kedia,
s/o.Damodarlal, Aged 51 years, occu:Business,
Regd.Office at 14-2-420, Sukhji Lane,
Goshamahal, Near DVS Floor Concepts,
Chaknawadi, Hyderabad.
.... Appellant/petitioner/
Plaintiff
Vs.
Surat Singh Malhotra s/o.late Jagdish Singh Malhotra,
Aged 65 years, occu: Business, H.No.8-2-608/1/3,
Namdhari Towers, 3rd Floor, Road No.10, Banjara Hills,
Hyderabad others.
....Respondents/respondents/
Defendants
This Court made the following :
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
HONOURABLE SRI JUSTICE P.NAVEEN RAO
&
HONOURABLE DR. JUSTICE G.RADHA RANI
CIVIL MISCELLANEOUS APPEAL NOs.274, 281 OF 2022
and Cross Objections No. 24 of 2022
COMMON JUDGMENT: (Per Hon'ble Sri Justice P.Naveen Rao)
Heard Mr. A.Venkatesh learned counsel for the appellant and Sri
S.Ravi learned senior counsel for the respondents.
2. The appellant is the company, registered under the provisions of
The Indian Companies Act, 2013, represented by Sri Mahesh Kedia,
Managing Director of the company. The first respondent was initially
appointed as Managing Director of the petitioner company on 02.05.2015
and subsequently, his term was extended for a period of five years with
effect from 02.05.2019 to 01.05.2024.
3. Appellant alleges that during his tenure, the first respondent has
committed several illegalities, played fraud and acted against the interest
of the appellant company, misappropriated crores of rupees belonging to
the appellant by withdrawing them or depositing them into his own
account or to his family members' accounts, increased his shareholding
from 1,25,000 shares to 19,65,000 shares illegally. The first respondent
misused his capacity as Managing Director of the company and had
transferred lands belonging to the appellant company illegally in his
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
favour and in favour of his family members, who are the respondents 2 to
6 herein.
4. It is further case of the appellant that the first respondent had
executed 49 sale deeds in his favour in his personal capacity and
executed one sale deed in favour of the second respondent, who is his
wife, four sale deeds in favour of respondent no.3, one sale deed in favour
of respondent no.4, four sale deeds in favour of respondent no.5 and five
sale deeds in favour of respondent no.6. The respondents 2 to 6 are his
wife, sons and daughter-in-law. The respondent no.1 was also
instrumental in executing the sale deeds in favour of respondent nos.15
to 21, who are other employees of the petitioner company, wife of the
Chartered Accountant and Company Secretary of the company. It
amounts to personal gain and unjust enrichment and thereby depriving
the company of its legitimate assets and money. It is further contended
that all the transfers affected by the respondent no.1 are illegal, without
any authorization of the Board and as such they are liable to be cancelled.
5. It is further alleged that the first respondent had created Board
Resolutions dated 22.04.2021 and 16.06.2021, where under authorized
one J.Ramaswamy Sastry, employee of the company to execute sale deeds
in favour of the respondent nos.15, 17 to 21. It is further alleged that the
respondent no.1 failed to handover the records and documents belonging
to the company.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
6. Having come to know of the misdeeds by first respondent, in the
Board Meeting conducted on 14.07.2021, the first respondent was
removed from the Office of the Managing Director of the appellant
company and in his place, Sri Mahesh Kedia was appointed as Managing
Director. The appellant company issued legal notice dated 16.07.2021
calling upon the first respondent to return all the records and documents
of the company, but there is no response from the first respondent. The
appellant company has initiated proceedings under Section 452 of the
Indian Companies Act for not returning the records and documents of the
company.
7. The appellant instituted O.S.No.119 of 2021 in the Court of
Principal District and Sessions Judge at Sanga Reddy praying to grant
decree to cancel all the sale deeds where under properties of the appellant
company were sold and to grant mandatory injunction in favour of the
plaintiff and against the defendants directing defendants 1 to 6 and 15 to
21 to return the original link documents pertaining to the properties
mentioned in the schedule to the plaint.
8. I.A.No.771 of 2021 is filed by the appellant/plaintiff under Order
XXXIX Rules 1 and 2 read with Section 151 of Code of Civil Procedure,
1908, (for short, 'CPC') to grant ex parte ad-interim injunction restraining
the respondents 1 to 6 and 15 to 21, their agents, workmen from
changing the nature of the suit schedule properties.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
9. I.A.No.772 of 2021 is filed by the appellant/plaintiff under Order
XXXIX Rules 1 and 2 read with Section 151 of CPC to grant temporary
injunction restraining the respondents 1 to 6 and 15 to 21, from
alienating the suit schedule properties in favour of the third parties, till
further orders.
10. By common order dated 25.02.2022 the trial Court dismissed both
I.As. Challenging the decision of the trial Court these two Civil
Miscellaneous Appeals are preferred.
11. During the course of hearing these two I.As., the first respondent
raised the plea of maintainability of a suit in the civil Court and
consequently the two I.As. It was contended that Section 430 of the
Companies Act bars the jurisdiction of civil Court in disputes relating to
companies and the aggrieved party has to invoke the jurisdiction of the
National Company Law Tribunal.
12. This plea of respondents on maintainability of the suit in a civil
Court is negatived and the trial Court held suit is maintainable.
13. The respondents 1 to 6 filed cross-objections raising the plea of
maintainability of the suit and the CMAs arising out of interlocutory
orders of the trial Court.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
14.1. Learned counsel for appellant contended that large extent of land
belonging to the company was illegally knocked away by the first
respondent and his family members. With trust and confidence, the first
respondent was appointed as Managing Director. But, he misused his
position and transferred the land of the company to his name and in the
name of his family members. He has misused his position in the
company to commit several other illegalities. In order to recover the land
of the company, the company was compelled to file civil suit.
14.2. He would submit that 71 sale deeds were executed in his name or
in the name of his family members and sale proceeds are not accounted
in the company accounts. That shows there are fraudulent transactions
to knock away the properties of the company.
14.3. He would contend that the Managing Director has fiduciary
relationship with the company, but he misused his official position,
played fraud and caused huge loss to the company.
14.4. He would submit that the trial Court grossly erred in not granting
injunction. There is every possibility of the respondents creating third
party interest and changing the physical features of the land and in such
an event grave prejudice would be caused to the appellant.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
15.1. Per contra, learned senior counsel for respondents raised
preliminary objection on maintainability of the suit in the civil Court and
these appeals arising there from. According to learned senior counsel
what is urged in the suits are company disputes and such disputes have
to be urged only before the National Company Law Tribunal (NCLT) and
civil suit is not maintainable. He placed reliance on Sections 430, 241
and 242 of the Companies Act.
15.2. He would further submit that first respondent as Managing
Director was authorized to represent the company in all aspects. He was
competent to execute sale deeds on behalf of the company. The company
sold the land. All sale transactions reflect receiving full sale consideration
and there was no illegality in executing the sale deeds. The sale deeds are
in compliance of law.
15.3. He would submit that as sale transactions were in compliance of
law, balance of convenience is not in favour of the appellant. The trial
Court has assigned reasons in rejecting the applications to grant
injunctions. There is no illegality committed by the trial Court in rejecting
the injunction applications.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
15.4. Learned senior counsel placed reliance on the decision of the
Hon'ble Supreme Court in Prem Singh and others vs. Birbal and others1
(paragraph-27).
16. In reply, learned counsel for appellant contended that what is
prayed in the suit is not barred by Section 430 of the Companies Act and
the suit is maintainable. He placed reliance on the decision of Hon'ble
Supreme Court in Darshan Anilkumar Patel vs. Pravinkumar Jinabhai Patel
and others2. He would submit that Section 241 only deals with a
member/shareholder of the company and does not envisage remedy
before the Tribunal by the company. Therefore, to declare the sale
transactions as void only civil Court has jurisdiction.
17. Issues for consideration:
(i) Whether the suit of the appellant is maintainable in the civil
Court ?
(ii) Whether the appellant is entitled to injunctions prayed for ?
Issue (i):
18. Section 430 of the Companies Act takes away jurisdiction of the
civil Court to entertain any suit or proceeding in respect of any matter
which the NCLT or the National Company Appellate Tribunal is
empowered to determine by or under the Act or any other law for the time
1 (2006) 5 SCC 353
2 MANU/SCOR/46567/2020
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
being in force. It also restrains civil Courts to issue injunction orders on
such matters. Insofar as these cases are concerned, Sections 241 and
242 of the Act are relevant. Section 241(1)3 of the Act enables a member
of a company to apply to the Tribunal complaining on various aspects
enlisted in clauses (a) and (b). According to Section 242, in any
application filed under Section 241, if the Tribunal opines the affairs of
the company 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 interest of the company; and opines to
wind up the company would unfairly prejudice such member or members,
but otherwise the facts would justify the making of a winding-up order,
the Tribunal may, with a view to bringing to an end the matters
complained of, make such order as it thinks fit.
19. Section 241 makes it clear that a member of a company or Central
Government can only file a complaint setting in motion appropriate action
by the Tribunal under Section 242, which can even result in initiation of
3 S.241.Application to Tribunal for relief in cases of oppression, etc. --
(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.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
winding-up proceedings. An order passed under section 242(1)4 can also
provide for setting aside 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 application or recovery of
undue gains made by the Managing Director or Manager or Director
during the period of their appointment.
20. A combined reading of Sections 241 and 242 make it clear that on
complaint given by the member of the company, the Tribunal can go into
the functioning of the company and take appropriate action as warranted
including winding-up and taking action under Section 242 (2) (g)& (i)5 of
the Act. From the reading of clause (g) of sub-section (2), it is manifest
that to take action to set aside any transfer, delivery of goods, payment,
execution or other act relating to property that action ought to have been
made or done by or against the company within three months before the
date of filing application under Section 241.
S.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.
5 S.242. Powers of Tribunal.
(2)Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section
may provide for-- (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; (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 utilization of the recovery including
transfer to Investor Education and Protection Fund or repayment to identifiable victims;
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
21. In the case on hand, the complaint is not by the individual member
of the company, but by the company itself seeking to cancel the sale
deeds executed by the then Managing Director/first respondent
representing the company in his own name or in the name of his family
members, a total of 79 transactions and sale transactions were made
much prior to three months from the date of filing of the civil suit.
Therefore, even if course suggested by Section 242 is to be followed, no
such action can be taken under Section 242 (2)(g). Therefore, perforce,
provisions in Sections 241 and 242 are not attracted to the cases on
hand.
22. Section 96 of the CPC vests jurisdiction in a civil Court to try all
suits of a civil nature excepting suits of which their cognizance is either
expressly or impliedly barred. Disputes concerning execution of sale
deeds affecting immovable property are a civil dispute. Section 430 of the
Companies Act bars jurisdiction of the civil Court only when a matter
which the Tribunal or the appellate Tribunal is empowered to determine
.
6 S.9 of CPC. Courts to try all civil suits unless barred The Courts shall (subject to the provisions herein
contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either
expressly or impliedly barred.
[Explanation I].--A suit in which the right to property or to an office is contested is a suit of a civil nature,
notwithstanding that such right may depend entirely on the decision of questions as to religious rites or
ceremonies
[Explanation II].--For the purposes of this section, it is immaterial whether or not any fees are attached to the
office referred to in Explanation I or whether or not such office is attached to a particular place.]
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
by or under the Act. What is required to be seen is whether there is
express or implied bar of jurisdiction of civil Court.
23. In the facts of these cases, only Section 241 is applicable and
whereas Section 241 is not attracted as the dispute is raised by the
company against its former Managing Director. Therefore, the issue
raised in the civil Court is not barred expressly ousting the jurisdiction of
the civil Court. From the reading of Section 430 read with Sections 241
and 242, it cannot be said that impliedly also the jurisdiction of civil
Court is ousted. The scheme of Section 241 can be understood by looking
into provision in Section 59. According to this section, if the name of any
person is entered in the register of members or omitted from the register
or if a default is made or unnecessary delay takes place in entering in the
register, the person aggrieved or any member of the company or the
company itself may apply in such form as may be prescribed to the
Tribunal. In such a case, it is deemed that the jurisdiction of the civil
Court is ousted.
24. Juxtaposing Section 59 with Section 241, it is apparent that while
under Section 59 a company can also file complaint or application before
the Tribunal, under Section 241 only a member can file such a complaint.
A company has no remedy before the Tribunal. Further, the course
suggested by Section 242 (2)(g) can be adopted when the Tribunal is
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
satisfied that winding-up process be set in motion. Therefore, it cannot
be assumed that jurisdiction of the civil Court is ousted.
25.1. In Avanti Explosives Private Limited vs. The Principal Subordinate
Judge, Tirupathi, Chittoor district and another7, the jurisdiction of civil
Court vis-à-vis the Companies Act was considered by the learned single
Judge of this Court, as he then was. Briefly the facts to the extent
relevant are, a proposal to shift the Registered Office of the petitioner
company from Secunderabad to Tirupathi was accepted by the Board of
Directors. At Tirupathi, the company was to be located in a premises as a
lessee of another firm by name Avanthi Enterprises, which in turn was
the principal lessee from the owners of the building. The 2nd respondent-
plaintiff was a partner of Avanthi Enterprises with whom the petitioner-
company entered into the sub-lease. It was alleged that 2nd respondent
did not specifically disclose the fact of his being a partner of Avanthi
Enterprises to the company as required by Section 293 read with Section
299 of the Indian Companies Act, 1956. On that ground, the other
Directors are said to have passed a resolution holding that the plaintiff
has become disqualified from being a Director with retrospective effect
from 13.06.1980. Second respondent filed the civil suit contending that
he was present at the meeting which took place on 13.02.1984 and no
such resolution disqualifying him was passed. He claimed that 2nd
7 1985 SCC Online AP 55
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
respondent-plaintiff continues to be the Managing Director of the 1st
defendant (petitioner-company) and for further declaration that any Board
meeting held by the petitioner subsequent to 13.02.1984 is null and void
and also for further declaration that any change effected in the
composition of the Board of the petitioner subsequent to 13.02.1984 is
illegal. He also sought for permanent injunction restraining the
defendants therein from interfering with the office of the 2nd respondent-
plaintiff as Managing Director in the day-to-day affairs of the petitioner-
company.
25.2. At that stage, instant Writ Petition was filed contending the
disqualification specified in Section 283 (1)(i) and 299 of the Act relates to
certain rights unknown to the common law and those rights as well as the
remedies in that regard are those specially created by the Companies Act
and the 2nd respondent ought to have approached the Company Court
and not the civil Court for adjudication of disputes relating to his
disqualification.
25.3. Having regard to the objection raised on maintainability of the civil
suit, the question considered by the Court was "whether the civil Court
has jurisdiction to decide the question relating to the alleged
disqualification of the 2nd respondent". The learned single Judge held as
under:
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
"11. It will be noted that there is no express provision ousting the jurisdiction of
the Civil Court in any particular respect. All that Section 10 does is to state that
"the Court" having jurisdiction under the Act shall be the High Court in whose
jurisdiction, the registered office of the Company is situate, except to the extent
to which the jurisdiction has been conferred on any District Court under sub-
section (2) by notification issued by the Central Government. The Central
Government can empower a District to exercise all or any jurisdiction conferred
by this Act "upon the Court" except the jurisdiction conferred by Section 237,
391, 394, 395 and 397 to 407 (both inclusive) and not being the jurisdiction
conferred in respect of Companies with paid-up share capital of not less than Rs.
one lakh by Part-VII and the provisions of the Act relating to winding up of
companies.
xx
13. In my view section 10 of the Act only proceeds to enumerate or specify "the
court having jurisdiction under this Act", wherever such jurisdiction is conferred
on "the Court, by the other provisions of the Act. Powers are conferred by the Act
not only on Courts but also on other authorities like the Central Government, the
Company Law Board and the Registrar and where a power is vested in a Court
that Court has to be specified Beyond so specifying the Court competent to deal
with a matter arising under the Act, Section 10 does not purport to invest the
Company Court with jurisdiction over every matter arising under the Act. It may
be that, in view of the elaborate provisions contained in the 1956 Act in regard to
the Managing and the conduct of a Company's affairs including important
internal matters of administration, the Court's interference by Civil Court has
become more limited, but the power has not at all been taken away. Every suit
for redress of individual wrongs cannot be considered as merely concerned with
matters of internal management. (M.P. Menon, J. in P. Prakasam v. Sri Narayana
Dharma Paripalan Yogam (1) 1980 (50) Company Cases page 611.
xx
23. In our High Court in Bhagwandas v. Canara Bank Ltd. (16) (1978) 1 An. W.R.
504 Chennakesav Reddi, J. (as he then was) held that a suit for recovery of
money against the Canara Bank in respect of the deposit amount payable by the
plaintiff in respect of twelve shares was maintainable, observing:--
"Section 10 of the Companies Act also confers exclusive jurisdiction on the High
Court only in respect of matters covered by Sections 237, 391, 394, 395 and 397
to 407 (both inclusive) and in respect of matters covered by part VII of the
Companies Act with a paid up capital of one lakh of rupees and over in respect of
other provisions relating to winding up of the companies. Except in respect of
these matters, the ordinary jurisdiction of the civil courts to decide the rights of
parties is not excluded.".
xx
25. Following the aforesaid rulings, with which I respectfully agree, I hold that
the present case deals with an individual, right of the 2nd respondent and that
the suit filed by him is maintainable.
xx
32. I, therefore, hold that the general law of contracts is the basis of the rights of
parties and that the companies Act, 1956 merely regulates these rights and does
not create any new rights or remedies. Unless as stated in Wolverhampton's
case (22) there is an exclusion of the jurisdiction of the civil court, by words
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CMA Nos.274 & 281 of 2022
express or implied, the suit is maintainable, and no such exclusion has been
held existing by the courts in respect of individual rights."
26. The Division Bench of High Court in Tej Prakash S.Dangi and others
vs. Coramandal Pharmaceuticals Limited8, affirmed the decision of learned
single Judge and held the contrary view taken in Nizamabad Corn Products
(P) Limited vs. Vasudev Walia is overruled. Paragraph-8 reads as under:
"8. Pressing for the opposite view, Mr.Sastry has placed reliance on a decision
of a Single Judge of this court in Nizamabad Corn Products (P) Ltd. V. Vasudev
Walia. The court in that case was considering the maintainability of a suit in the
civil court to declare a resolution passed in the annual general meeting and the
meeting of the Board of Directors removing a Director of a Company as illegal
and void and for permanent injunction. The learned Judge held that the view
that the civil court's jurisdiction has not been taken away merely because Section
10 confers jurisdiction on the High Court, cannot be correct in view of the
specific direction contained in Section 10(1)(a), viz., 'except to the extent to
which jurisdiction has been conferred on any District Court, in pursuance of
Sub-section (3)'. The learned Judge proceeded on the footing that the civil court
has jurisdiction only in matters in respect of which specific jurisdiction has been
conferred upon it and that otherwise, the High Court has the exclusive
jurisdiction in all matters. Since the learned Judge was deciding contrary to the
view taken in the earlier decision of the court in Avanthi Explosives P.Ltd. v.
Principal Subordinate Judge (1997) 5 Com LJ 345 (AP) - it was necessary to have
referred the case to a larger Bench. A judgment of a co-ordinate Bench is
binding unless it is overruled by a larger Bench. Besides, the view was also not
legally correct. The civil court would have jurisdiction in all matters unless its
jurisdiction is either expressly or by implication ousted. We hence overrule the
decision."
27. In Bakshi Faiz Ahmad v. Bakshi Farooq Ahmad and another9, it was
contended that the suit instituted by the respondent no.1 for declaration,
partition, possession with mandatory and permanent injunction against
appellant and second respondent was not maintainable. Elaborately
considering the various provisions of the Companies Act, learned single
Judge of J&K High Court held as under:
8 (2002) 108 Company Cases 516 AP
9 2018 SCC Online J&K 249
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CMA Nos.274 & 281 of 2022
"35. Qua applicability of provisions of Companies Act, 2013, it is well settled law
that a serious question of fraud and collusion cannot be decided by the Tribunal
in a summary proceeding. Given the relief solicited for by respondent no. 1 in the
Suit for Declaration, Partition and Injunction, the Tribunal has no power to
decide the title of the shares in summary proceedings. Section 58 of the
Companies Act, provides that rectification of register of members has to be
decided by Tribunal and as per Section 430, the Civil Court has no jurisdiction.
At the same time, it is also a trite law that Tribunal has a power only to decide
the issue of rectification of register of members and has no power to decide the
issue of title. It is apt to mention here that as per Section 111A of the Companies
Act, 1956, the Company Law Board was empowered to decide the issue of title
also. The word 'title' has not been included in Section 58 of the Companies Act,
2013. Even while considering Section 111A, it was held by the Supreme Court
that a seriously disputed question of title cannot be decided by the Company
Court or Company Law Board. This conclusion was arrived at by the Supreme
Court by taking into consideration jurisdiction of the Company Law Board being
summary in nature. The procedure in National Company Law Tribunal
constituted under the Companies Act, 2013, is also summary in nature.
36. From the provisions of Companies Act, 2013 and 1956, it is clear that
Tribunal, or Board as the case may be, can decide only rectification of register
concerning shares and connected incidental issues and matters therewith and
not disputed questions of title. In the present case, a bare perusal of averments
in the plaint as well as the relief sought for by respondent no. 1 shows that to
decide the issue raised by him vis-à-vis share(s)/title of the property in question
is a disputed question of title, which can be decided by the Civil Court and the
Tribunal/Company Law Board has no power to adjudicate the said issue. The
Supreme Court in Ammonia Supplies Corporation (PT) Limited v. Modern Plastic
Containers (P) Ltd., (1998) 7 SCC 105, the scope of jurisdiction of the Company
Court to deal with an issue of rectification in the Register of Members maintained
by the Company was considered. Following Public Passenger Service
Limited v. M.A. Khadar, AIR 1966 SC 489, it was held that jurisdiction under
Companies Act, was summary in nature. If for reasons of complexity or
otherwise, the matter could be more conveniently decided in a suit. In Standard
Chartered Bank v. Andhra Bank Financial Services Limited, (2006) 6 SCC 94, it
was observed that jurisdiction of Tribunal being summary in nature, a seriously
disputed question of title could be left to be decided by the civil court as same
being more appropriate remedy for investigation and adjudication of such
seriously disputed question of title. In Luxmi Tea Company Limited v. Pradip
Kumar Sarkar, 1989 Supp (2) SCC 656, it was observed that a company did not
have any discretion in rectifying its register except to require the procedure being
followed."
28.1. In Shashi Prakash Khemka (dead) through Legal Representatives and
another vs. NEPC MICON (now NERPC India Limited) and others10, matter
concerns transfer of shares. On appeal filed against the order of Company
10 (2019) 18 SCC 569
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
Law Board, Madras High Court reversed the decision of the Company Law
Board and appellants were left to avail a remedy of civil suit.
28.2. The issue raised therein is covered by the provision in Section 59 of
the Act. Section 59 vests jurisdiction in the NCLT. In view thereof the civil
suit remedy completely barred and only National Company Law Tribunal
alone is entitled to adjudicate the dispute raised under Section 59.
Paragraph-6 reads as under:
"6. It is not in dispute that were a dispute to arise today, the civil suit remedy
would be completely barred and the power would be vested with the National
Company Law Tribunal (NCLT) under Section 59 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."
29.1. In Darshan Anilkumar Patel (supra), in a civil suit filed before the
civil Court, it was contended that defendant no.1-Pravinkumar Jinabhai
Patel was not competent to execute sale deeds on various properties in
favour of defendants 2 to 19 and agreement to sell in favour of defendant
no.20. By judgment and decree dated 15.04.2013, trial Court dismissed
the suit. The trial court held that Sri Anilkumar was not a Director of
Kalpita Buildings Pvt. Ltd., and further held that defendant no.1 was the
Managing Director of Kalpita Builders Pvt. Ltd. and that the alienation
done did not suffer from any infirmity and that there was a mis-joinder of
causes of action. On this, two appeals were preferred, one by the Company
and another by Sri Anilkumar. It was contended that jurisdiction of civil
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CMA Nos.274 & 281 of 2022
Court is barred in view of Section 430 of the Act. Learned single Judge of
Bombay High Court in W.P.No.1139 of 2020 held as under:
"9. Section 430 is brought into force with efect from 01st June, 2016, vide
Notifcation No. SO 1934(E), dated 01.06.2016. The submission of the plaintif,
that the jurisdiction of the Civil Court is barred, is on the premise that in view of
the coming into force of Section 430, the jurisdiction of the Civil Court is barred,
since the NCLT is empowered to deal with and decide the issues framed by the
trial Court. The submission is, that in view of the provisions of Section 424 of the
Act, which deals with the procedure regulating the proceedings before the NCLT,
the powers vested in the Civil Court under the CPC are conferred on NCLT. The
submission is, that the power of NCLT is indeed broader and wider than the
power which can be exercised by the Civil Court, since the NCLT is a specialised
Tribunal constituted to ensure speedy and efective regulation of the afairs of the
Companies. It is submitted that the NCLT, having been created by amending the
law, and having been vested with all the trappings of the Civil Court, in view of
the amendments, the bar under Section 430 of the Act is triggered."
29.2. On appeal, Hon'ble Supreme Court upheld the view taken by the
learned single Judge of Bombay High Court. Hon'ble Supreme Court in
Darshan Anilkumar Patel - [SLP Civil Diary No.9209/2020], held as under:
"2. There is no error in the finding that the suit which was filed for a declaration
in regard to the invalidity of the sale deeds was properly instituted before the civil
court and there was no occasion to transfer the appeal to the National Company
Law Tribunal. Section 430 of the Companies Act, 2013 bars the jurisdiction of a
civil court to entertain a suit or proceeding in respect of any matter which the
tribunal or the appellate tribunal is empowered to determine under the Act or
any other law for the time being in force. The jurisdiction to decide the validity of
a sale deed would fall within the ambit of the civil court. Hence, we are in
agreement with the impugned order of the High Court dated 5 February, 2020."
29.3. Learned senior counsel Sri S.Ravi contended that in that case cause
of action arose prior to 01.06.2016 on which date Section 430 came into
effect and, therefore, the decision rendered by the Bombay High Court,
affirmed by the Hon'ble Supreme Court has no application to the facts of
these cases.
29.4. What is contended by the learned senior counsel may be true, but
Hon'ble Supreme Court held that jurisdiction to decide validity of the sale
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CMA Nos.274 & 281 of 2022
deed would fall within the ambit of the civil Court. In view of the said
opinion, the Hon'ble Supreme Court upheld the decision of the Bombay
High Court.
30. This view of the Hon'ble Supreme Court is in tune with the earlier
decision of the Hon'ble Supreme Court and the decisions of the learned
single Judge and the Division Bench of this Court.
31. Cumulatively, unless, there is specific bar excluding the jurisdiction
of the civil Court on any matter, which is also traceable to Companies Act,
the jurisdiction of the civil Court to decide the civil dispute is not ousted.
At the cost of repetition, it is appropriate to note that the issue raised
before the civil Court is regarding the illegality in the transactions
undertaken by the first respondent in executing sale deeds on behalf of the
plaintiff company to himself and to his family members as illegal and to
cancel all the sale deeds and to grant mandatory injunction in favour of
the plaintiff. Thus, what is urged before the civil Court is a dispute civil in
nature and the civil Court has jurisdiction under Section 9 of the CPC and
the jurisdiction of civil Court is not ousted by Section 241 of the
Companies Act. Except Section 241 no other provision is brought to our
notice, which ousted the jurisdiction of the civil Court to adjudicate the
dispute raised by the plaintiff company. The Cross Objection No. 24 of
2022 on maintainability of suit is rejected.
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
Issue (ii):
32. Having cleared the issue (i), we set out to consider issue (ii).
33. The elementary principles to consider application to grant
injunction pending trial of a suit are prima facie case, balance of
convenience and irreparable loss and hardship to the plaintiff.
34. It is not in dispute that all the suit schedule properties belonged to
the appellant company. The first respondent was the Managing Director
of the appellant company. In the capacity as Managing Director he was
the custodian of the assets of the company and is required to protect the
interests of the company at any cost. That being so, the appellant
company now alleges that the first respondent siphoned of money and
illegally transferred the assets of the company. It is not in dispute that
large extent of land parcels were transferred to himself and his close
family members and his known persons. The proceeds of sale
transactions are not reflected in the company accounts. The appellant
marked Exs.P96 - bank statement, to show that it does not reflect
depositing of sale proceeds. Sale deeds may reflect payment of full sale
consideration, but in 49 sale deeds he represented the company as vendor
and he is the vendee and in 15 other sale deeds his family members are
the vendees. Therefore, it was only nominal transaction. At any rate, sale
proceeds are not credited to the company account. As no money is
credited to the bank accounts of the company, prima facie, it cannot be
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CMA Nos.274 & 281 of 2022
said that the sale of land was in the interest of the company. The
allegations leveled by the appellant, if proved, are serious. It may be
possible that what all was done by the first respondent was justified and
in the interests of the company. Parties are entitled to lead evidence in
support of respective claims. While so, if injunction is not granted,
respondents/defendants are free to change the physical features of the
land and create third party interests. If that happens, in the event of
plaintiff succeeding in the suit it would be difficult to enforce the decree
and secure possession of the land and might lead to more litigation.
35. Appellant has made out a prima facie case. In the peculiar facts of
these cases, balance of convenience is in favour of the appellant and
unless injunction is granted, grave prejudice would be caused to the
appellant which cannot be remedied later.
36. The Civil Miscellaneous Appeals are accordingly allowed and Cross
Objection No. 24 of 2022 is dismissed. It is made clear that there is no
expression of opinion on merits. Since we have upheld the decision of
Court below on maintainability of the suit, we leave open all issues to be
urged in the pending suit. Pending Miscellaneous applications, if any,
shall stand closed.
______________________
P.NAVEEN RAO,J
PNR,J & Dr.GRR,J
CMA Nos.274 & 281 of 2022
______________________
DR.G.RADHA RANI,J
Date: 04.08.2022
KKM/tvk
HONOURABLE SRI JUSTICE P.NAVEEN RAO
&
HONOURABLE DR. JUSTICE G.RADHA RANI
CIVIL MISCELLANEOUS APPEAL NOs.274, 281 OF 2022
and Cross Objections No. 24 of 2022
Date : 04.08.2022
Kkm/tvk
