Telangana High Court
Cherukuri Ramakrishna vs Sandhya Hotels Private Limited, on 24 April, 2024
Author: Nagesh Bheemapaka
Bench: Nagesh Bheemapaka
THE HON'BLE SMT. JUSTICE MOUSHUMI BHATTACHARYA
AND
THE HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA
C.C.C.A. No.57 OF 2023
JUDGMENT:
(Per Hon'ble Smt. Justice Moushumi Bhattacharya)
The appeal arises from an order passed by the learned XI
Additional Chief Judge, City Civil Court at Hyderabad, on
09.01.2023, in I.A.No.1099 of 2022 in O.S.No.476 of 2018.
2. The impugned judgment was passed on an application
filed by the defendants (respondents in the appeal) under Order
VII Rule 11(a) and (d) read with Section 151 of The Code of Civil
Procedure, 1908, for rejection of plaint. By the impugned order,
the learned Trial Court allowed the application filed by the
defendants and directed for return of the plaint for filing before a
proper forum.
3. The appellant before us was the plaintiff and the
respondents were the defendants in the Trial Court.
4. Learned counsel appearing for the appellant assails the
impugned order on the ground that Section 430 read with
Sections 58 and 59 of The Companies Act, 2013, would have no
application to the facts of the case contrary to what was held by
the Trial Court. Counsel submits that the prayer for re-transfer of
the shares from the respondents to the appellant (defendants to
the plaintiff) is a matter which is entirely within the domain of a
Civil Court. Counsel takes the Court through the relevant
pleadings in the plaint to submit that the National Company law
Tribunal (NCLT)/the National Company Law Appellate Tribunal
(NCLAT) would not have jurisdiction to adjudicate on the issues
raised in the suit filed by the appellant.
5. Learned counsel appearing for the respondents/
defendants relies on Section 430 read with Sections 58 and 59 of
The Companies Act, 2013, to urge that there is a complete bar in
the said Act against Civil Courts from entertaining any suit which
is within the domain of the NCLT/NCLAT. Counsel further
submits that the dispute cannot be referred to arbitration in terms
of Clause 8 of the Share Purchase Agreement executed between
the parties in 2015 since the appellant is only one of the several
'Transferors' in the Share Purchase Agreement.
6. A brief factual background to the present appeal is
required to be stated. The appellant/plaintiff was the owner of a
substantial number of shares in M/s. Sunbeam Hospitality
Private Limited. The appellant, along with other shareholders of
Sunbeam Hospitality, entered into a Memorandum of
Understanding (MOU), Share Purchase Agreement (SPA) and a
Takeover Agreement with the respondents/defendants for
transfer of their shares in favour of the respondents. The parties
agreed that the respondents would pay Rs.20,04,50,700/- to the
appellant. Admittedly, the respondents have paid only a part of
this amount i.e., Rs.19,37,50,700/-; the balance of Rs.67,00,000/-
remains outstanding as on date.
7. The appellant says that the respondents fraudulently
transferred the shares of the appellant in their names without
making payment of the balance consideration and also removed
the appellant as Director before taking over the control of the
Company. The appellant was therefore constrained to file
O.S.No.476 of 2018 in the learned City Civil Court at Hyderabad
for mandatory injunction and for re-transfer of 10,197 shares in
M/s. Sandhya Hospitality Private Limited (formerly M/s.
Sunbeam Hospitality Private Limited). The impugned order
rejecting the plaint was passed on the respondents' application
leading to the present appeal filed by the appellant/plaintiff.
8. The only issue which falls for adjudication before this
Court is whether the appellant/plaintiff could have been ousted
from the domain of the City Civil Court, Hyderabad by reason of
Section 430 read with Sections 58 and 59 of The Companies Act,
2013.
9. The sole reason for rejection of the plaint was that Clause 8
of the SPA operates as a bar on the City Civil Court entertaining
the suit.
10. Clause 8 of the SPA is set out below:
"In the event of any dispute or difference at any time
arising between the Transferors & Transferees in respect of
anything arising out of and incidental thereto, such dispute of
difference shall be submitted to Arbitration in Hyderabad in the
State of Andhra Pradesh under the provisions of Arbitration and
Conciliation Ordinance 1996 or any Statutory enactment thereto
for the time Being force and each of the parties shall be entitled
to appoint their own Arbitrator."
11. The above clause indicates that the parties agreed to refer
any dispute arising from the SPA with regard to transfer of shares
from the appellant to the respondents to arbitration. It was hence
open to the Trial Court to take the point of arbitrability of the
dispute and pass necessary orders consequent to such finding.
The issue of arbitrability of the dispute is relevant since counsel
for the appellant proposes to file an appropriate application for
appointment of Arbitrator under Section 11 of The Arbitration
and Conciliation Act, 1996.
12. Counsel for the respondents, on the other hand, resists the
proposal on the ground that the appellant cannot carry such
application on his own without the other parties to the SPA.
13. We cannot accept the objection raised on behalf of the
respondents since the question whether all the parties to the SPA
are before the Court in the application filed under Section 11 of
The Arbitration and Conciliation Act, 1996 for appointment of
arbitrator may only be gone into at the time of hearing of the
application as and when it is filed. It would be unwarranted to
limit the options available to the appellant at this stage of the
proceedings. We accordingly are of the view that the appropriate
Court will decide the fate of such application as and when the
appellant takes necessary steps in terms thereto.
14. The next issue is with regard to the applicability of Section
430 read with Sections 58 and 59 of The Companies Act, 2013, to
the suit filed by the appellant.
15. The Trial Court rejected the plaint under Order VII Rule 11
(a) and (d) read with Section 151 of The Civil Procedure Code,
1908, which provides for rejection of the plaint where the suit
appears from the statement in the plaint to be barred by any law.
The Trial Court relied on Clause 8 of the SPA to hold that the
Civil Court does not have any jurisdiction and that the parties
must therefore be relegated to arbitration.
16. We disagree with the view taken by the Trial Court.
17. Section 430 of The Companies Act, 2013 was enacted to
discourage Civil Courts from passing injunctions or interfering
with actions/orders taken or passed by the NCLT/NCLAT. The
words 'Tribunal' and 'Appellate Tribunal' have been defined as
"the National Company Law Tribunal constituted under section
408" and "the National Company Law Appellate Tribunal
constituted under section 410" under Section 2 (90) and (4) of The
Companies Act, 2013, respectively. Section 430 is set out below:
"430. 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."
Section 430 constitutes a bar on a Civil Court from
entertaining any suit, the subject matter of which is within the
determination of the NCLT/NCLAT. This would be clear from
the section itself. The object of Section 430 was to demarcate the
zones of adjudication between Civil Courts and
NCLTs/NCLATs.
18. Section 58 of The Companies Act, 2013, deals with refusal
of registration by private and public Companies to register the
transfer of securities and provides for appeal by a transferee to
the Tribunal against such refusal by a private and a public
company. Section 59 of The Companies Act, 2013, provides for
rectification of the register of members of a Company where the
name of a person has been entered without sufficient cause or
where rectification is required for omissions or delay.
19. The respondents have relied on both these sections to urge
that the NCLT would have jurisdiction to entertain the plaintiff's
dispute which was brought to the City Civil Court.
20. However, contrary to the submissions made on behalf of
the respondents, we are unable to accept the application of either
of these provisions to the facts of the case.
21. First, both these sections deal with refusal of registration of
the transfer or transmission of shares/securities and appeal
against refusal and rectification of register of companies (as
defined in Section 2(74)) pursuant to certain defaults. It is evident
that these provisions would only become relevant once the title to
the shares/securities has been decided.
22. The decision-making with regard to the title of the shares is
within the domain of the Civil Court and not the NCLT/NCLAT.
This would also be clear from the proviso to Section 58(2), which
reads that any contract or arrangement between two or more
persons in respect of transfer of securities shall be enforceable as
a contract. Moreover, Section 58 (5) (a) and (b) defines the
powers of the Tribunal by delineating the orders which may be
passed by the Tribunal in respect of directing registration of
transfer/transmission by the Company or rectification of the
register or even directing the Company to pay damages to the
aggrieved party.
23. It is also significant that the respondents objected to the
applications filed by the other shareholders before the NCLT
under Section 244 of The Companies Act, 2013 on the ground that
the said shareholders do not fulfill the eligibility criteria for filing
the Company Petition under Sections 241 and 242 read with
Section 59 of The Companies Act, 2013. The conduct of the
respondents before this Court and before the NCLT, Hyderabad
Bench (although in respect of the other shareholders to the SPA)
is therefore one of approbation and reprobation.
24. The respondents' arguments of the NCLT being the proper
forum for deciding the dispute is hence without basis.
25. It is also relevant that the statements in the plaint filed by
the appellant enumerate the wrongful and illegal acts of the
respondents/defendants in terms of failing to pay the total
consideration for the transfer of shares to the plaintiff and
unjustly enriching themselves in the process. Although the
appellant has not specifically used the word 'fraud' in the plaint,
the illegalities committed on the part of the respondents have
been spelt out in paragraph 8 (e) and (f) of the plaint.
26. It is clear from these averments that the NCLT is certainly
not the forum to decide on the acts of omission or commission on
the part of the respondents and more importantly on the issue of
re-transfer of the shares in favour of the appellant or even the title
of the shares pending or on completion of the transfer. The facts
pleaded in the plaint are concerned with individual rights of the
appellant and those of the respondents, as the plaintiff and the
defendants, respectively. Only a Civil Court is empowered to
decide disputes of this nature subject to the parties agreeing to
refer the dispute to arbitration. The NCLT is certainly not the
proper forum to adjudicate on disputes of individual members
with regard to transfer of or title to the shares. Section 430 or
Sections 58 and 59 of The Companies Act, 2013, will hence not
operate as a bar to the suit filed by the appellant in any manner
howsoever.
27. The facts in Shazia Rehman v. Anwar Elahi 1 before the Delhi
High Court are similar to those before this Court and assist the
appellant. A Division Bench of the Calcutta High Court, in Phool
Chand Gupta v. Mukesh Jaiswal 2 held that the NCLT would not
have jurisdiction to decide on a serious enquiry with regard to
fraud. Shashi Prakash Kemka v. NEPC Micon Ltd. 3 was specifically
on the exercise of power under Section 59 of The Companies Act,
2013 (Section 111A of the earlier Act of 1956) where the appellants
2023 SCC OnLine Del 4807
2023 SCC OnLIne Cal 1812
(2019) 18 SCC 569
before the Supreme Court were relegated to a civil suit. In that
case, the dispute was not with regard to the forum which would
exercise jurisdiction on the subject matter of the dispute.
28. In essence, the above discussion leads us to the view that
the Trial Court erred in rejecting the plaint on the ground of
Section 430 read with Sections 58 and 59 of The Companies Act,
2013, and for the reasons stated in the impugned order.
29. Clause 8 of the SPA, which provides for reference of the
dispute to arbitration and Section 430 read with Sections 58 and
59 of The Companies Act, 2013, contemplate two entirely
different implications/consequences. The Trial Court could have
referred the dispute to arbitration on the strength of Clause 8 of
the SPA, but instead mixed up the two remedies under The
Arbitration and Conciliation Act, 1996 and The Companies Act,
2013, to reject the plaint. No litigant can be left without a remedy.
In the present case, the stand taken on behalf of the respondents
amounts to ousting the appellant from all available and
competent fora. The Court certainly cannot be a mute spectator to
the conduct of the respondent.
30. The impugned order dated 09.01.2023 is set aside since we
have found that Section 430 read with Sections 58 and 59 of The
Companies Act, 2013, have no application to the statements in the
plaint and the relief sought for therein.
31. C.C.C.A.No.57 of 2023 is accordingly allowed and disposed
of in terms of this judgment.
_________________________________
MOUSHUMI BHATTACHARYA, J
______________________________
NAGESH BHEEMAPAKA, J
Date: 24.04.2024.
va
THE HON'BLE SMT. JUSTICE MOUSHUMI BHATTACHARYA
AND
THE HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA
C.C.C.A. No.57 OF 2023
Date: 24.04.2024
va
