Telangana High Court
M/S.Hyderabad Pollution Controls ... vs S. Radhakrishnan on 25 October, 2024
Author: G. Radha Rani
Bench: G. Radha Rani
THE HONOURABLE Dr.JUSTICE G. RADHA RANI
APPEAL SUIT No.220 of 2022
JUDGMENT:
This Appeal Suit is filed by the appellants, who are the plaintiffs
in O.S No.896 of 2015, aggrieved by the order and decree dated
01.04.2022 passed in I.A No.618 of 2021 in O.S No.896 of 2015 by the
learned XI Additional District and Sessions Judge (Fast Track Court),
Ranga Reddy District at Medchal, rejecting the plaint under Order VII
Rule 11 of CPC.
2. The respondents are defendants 1 to 7. The parties are hereinafter
referred as arrayed before the trial court as 'plaintiffs' and 'defendants'.
3. The defendants 1 to 7 filed an application under Order VII Rule
11 read with Section 151 of Code of Civil Procedure (for short 'CPC')
to reject the plaint on the ground that there was no cause of action to file
the suit and there was no jurisdiction to the court as the dispute between
the defendant No.1 and the plaintiffs was already settled by the
Company Law Board, Chennai in C.P No.40 of 2011 and the matter
was subjudice and ceased.
3.1. The plaintiffs filed counter in the said application.
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4. On hearing both the learned counsel, the learned XI Additional
District and Sessions Judge (Fast Track Court), Ranga Reddy District at
Medchal, allowed the application rejecting the plaint vide impugned
order dated 01.04.2022. Aggrieved by the said order passed in I.A
No.618 of 2021 in O.S No.896 of 2015 dated 01.04.2022 rejecting the
plaint, the plaintiffs preferred this appeal.
5. The suit was filed for cancellation of 86 Share Certificates
together with its supporting agreement dated 08.04.2010 as void and to
grant injunction restraining the defendants 1 and 2 and their agents from
dealing with the said Share Certificates together with its supporting
agreement in any manner or putting into use of or making any claim
using/through those documents in any manner detrimental or prejudicial
to their interest.
6. As the averments of the plaint are material to decide this appeal, it
is considered necessary to extract the same. As per the contents of the
plaint, the plaintiff No.1 was an established Company registered under
the Companies Act, 1956 in the year 1978 engaged in the business of
manufacturing Industrial Fans, Bag Filters, Roof Extractors, Air Filter
Systems and other equipments handling air pollution control systems.
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The plaintiff No.2 was the Managing Director of the plaintiff No.1's
Company. He was instrumental in setting up the said Company. After
gaining sufficient experience and after working with S.F. India Limited,
an Indian Subsidiary of Flakt Group, Stockholm, Sweden, plaintiff No.2
incorporated the Company and started business operations in 1979. The
defendant No.1 was the younger brother of the plaintiff No.2 and the
defendant No.3 was the wife of defendant No.1. The defendant No.1
was taken in the year 1986 as an employee to assist the plaintiff No.2 in
the business and later he was made as Director in the year 1996 and his
family members were also allotted shares of the company gratuitously to
have a sense of belonging. The defendant No.3 was the brother-in-law
of the plaintiff No.2. He was also given the position as a Director of
plaintiff No.1-company to assist the plaintiff No.2 in the administrative
functions of the business. The defendant No.3, including his family
members, were also allotted shares of the company gratuitously. The
defendant No.4 was the wife of defendant No.3 and defendant No.5 to 7
were the children of defendant Nos.3 and 4 in whose names the shares
of plaintiff No.1- company got allotted. As on 26.02.2007, the plaintiff
No.2 and his family members were holding 42% shares of the plaintiff
No.1-company, defendant No.1 and his family members were holding
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28% shares and the defendant Nos.3 to 7 were holding 30% share
holdings in the plaintiff No.1 - company. At that point of time,
defendant No.3 expressed his desire to retire from the company by
selling his share holdings including the share holdings of his family
members and accordingly sold 16% out of 30% of their holdings in the
company to plaintiff No.2 and the remaining 14% out of 30% of their
holdings in the company to defendant No.1. Consequently, the share
holding of the plaintiff No.2 (together with his family members) had
become 58% of the total paid-up shares of the plaintiff No.1 Company
and the share holdings of the defendant No.1 (together with his family
members) had become 42% of the total paid-up shares. Accordingly,
the transfer forms were prepared, executed and shares were transferred
on 27.2.2007. The defendant No.3 had also resigned from the Board of
Directors of plaintiff No.1- company. The defendant Nos.3 to 7 had
signed and delivered declaration stating that they had no shares or
interest in the company from that date.
6.1. As per the further averments in the plaint, in the course of
carrying out administrative functions of the plaintiff No.1 - company,
the defendant No.1 with a malafide intention and in collusion with
defendant Nos. 3 to 7, had stolen the executed share transfer deeds,
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other documents, securities and records of the plaintiff No.1-company,
waited for an opportune moment and sometime in January, 2010,
expressed that the defendant No.1 should be made a 50% stake holder
without any consideration and by blackmailing tactics, revealed that
entire documents evidencing the shares transferred on 27.02.2007 were
in his custody, and if the plaintiff No.2 did not agree to the said proposal
of making the defendant No.1 an equal 50% stakeholder, the plaintiff
No.2 would be reduced to a minority shareholder of 42% and the
defendant No.1 would be placed as 58% share holder with the help of
the defendant Nos.3 to 7. That was when the plaintiff No.2 came to
know that the securities and records of the plaintiff No.1 - company had
been stolen by the defendant No.1 in conspiracy with defendant Nos.3 to
7 for their illegal gain and unjust enrichment. Panicked over a situation,
wherein he would be loosing his control over the company built by him
over decades through his hard work, talent, knowledge, experience and
honesty, the plaintiff No.2 became the victim and had succumbed to the
designs of defendant No.1 to treat him as an equal 50% stake holder
gratuitously. It was under the fear and presumption that the whole of
records to prove his stake in the company had been lost by the wicked
act of the defendant No.1, who revealed to have illegally taken custody
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of them/stolen. The plaintiff No.2 mentally depressed over the stated
circumstances, wherein his own brother and brother-in-law turned
opportunists to cheat him under mental depression/duress signed all the
papers advanced some time in 8th April, 2010 by the defendant No.1
which, he realized later, included new set of share certificates, share
transfer agreements illegally fabricated and created for his exclusive
benefit by the defendant No.1 in collusion with the defendant No.3. A
perusal of the alleged share transfer agreement dated 08.04.2010 on
which the plaintiff No.2's signature was obtained would show that
shares mentioned therein were newly created share certificates beside
they were shown to have been lodged for transfer on 27.02.2007 and if
the transfer had taken place on 27.02.2007 there was no need to have an
agreement on 08.04.2010 (after almost 38 months), except to exhibit the
manipulated share holdings. When on 27.02.2007 itself, the defendant
Nos.3 to 7 ceased to be the members/shareholders of the plaintiff No.1-
company, there was no locus-standi to claim themselves to be the
transferors on 08.04.2010 to enter into Agreement for transfer of shares
and such an agreement and connected documents were void under
Section 23 of the Contract Act, but also contrary to Section 113 of the
Companies Act.
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6.2. It was further averred in the plaint that in the month of June,
2010, the plaintiff No.2 could get hold of the declarations dated
27.02.2007 signed by defendant No.3 and share certificates sold,
transferred and delivered by the defendant No.3 and his family members
from a safe-vault in the factory. With the said documents, the plaintiff
No.2 obtained legal opinion and backed by the documentary proof and
legal opinion, he confronted defendant No.1 and insisted to maintain the
status-quo as on 27.02.2007 or otherwise they would have to face
criminal prosecution. Fearing legal consequences, the defendant No.1
had agreed to maintain status-quo as on 27.02.2007 and transferred
certain shares originally belonged to him in the name and in favour of
plaintiff No.2 and his wife on 9th September, 2010 and to maintain
status-quo ante consequently, the defendant No.1 and his family's share
holding as on the date in the plaintiff company was 34% of the total
capital of the company. The defendant No.1, due to his greed had again
insisted the plaintiff No.2 to part with the value of those shares stating
that it was reimbursement of amount he paid to the defendant No.3.
Accordingly, the plaintiff No.2 had made payment of Rs.6,26,080/- to
defendant Nos.1 and 2.
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6.3. It was further averred that consequent to the above developments,
from 29.10.2010 the defendant No.1 had been absconding from the
Company again with other valuables including cars etc., exclusively
belonging to the Company and thereafter, never turned back to the
Company. He was removed from the Board of Directors with immediate
effect from 15.12.2011. The defendant Nos.1 and 2 filed Company
Petition No.40 of 2011 before the Company Law Board, Chennai
seeking investigation into the affairs of the plaintiff's Company under
Section 237 of the Companies Act. In the said petition, the defendant
Nos.1 and 2 claimed that they were 50% share holders of the Company
by using false and fabricated share transfer agreement dated 08.04.2010
created in collusion with defendant Nos.3 to 7 and used the same in
judicial proceedings with ulterior motives. During the course of
proceedings in the said Company Petition before the Company Law
Board, the defendant Nos.1 and 2 in January/February, 2015 filed
photostat copies of 86 nos. of fabricated Share Certificates to claim their
locus/stake and to claim that they held 50% of the share holdings of the
plaintiff Company. Intriguingly, the said Share Certificates were neither
issued by the Company nor they were part of the records of the plaintiff
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Company. The defendants' act of fabrication of the Share Certificates
was glaring on a look at some of the observations made below:
i. These Share Certificates were neither issued by the
Company nor are they part of the records of the Company.
ii. The highest Sl. Number of the Share Certificate Issued by
the Company is 104 beyond which Certificates are not
issued; whereas, Defendant Nos.1 and 2 claim to have
Certificate Nos.105 to 188.
iii. Certificate No.188 (SI.No.1) is claimed to have been
allotted to D-2 on 09.09.2010; whereas, no such fresh
allotment took place on 09.09.2010.
iv. Certificate No.183 to 186 (SI.No.83 to 86) is claimed to
have been allotted to Def-1,2/family on 27.02.2007;
whereas, no such fresh allotment took place on 27.02.2007.
[The latest fresh allotment took place in the Company on
01.02.2005, thereafter, there was no fresh allotment at all.]
v. Certificate No.27 (SI.No.4) doesn't have Distinctive
Numbers of Shares.
vi. Certificate No.70 (SI.No.25) is claimed to be of 2000
shares; whereas, as per Distinctive Numbers it is only 1500
shares (500 short).
vii. Certificate No.184 (SI.No.84) is claimed to be of 2795
shares; whereas, as per Distinctive Numbers it is 2805
shares (10 excess).
viii. Certificate Nos. 51 to 55 & 58 (SI.Nos.8 to 12&15); Certi.
Nos. 94 to 98 & 100 (Sl.Nos.33 to 37 & 39); Certi.
No.149 (SI.No.59); shown to have had first transfer on
27.01.2007; whereas, as per Company's records no
transfer of shares have taken place on that date.
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ix. Distinctive Numbers of Shares and some quantum of it in
certificate Nos.34, 81,82,99,100,92 (as per Company's
records) are claimed to be either belonged to the
Defendants' or their Transferors', while as per company's
record they belong to and stand in the name of neither of
them.
x. The claim made as mentioned in (ix) above makes-up to
70062 Nos. of Shares which is about 8.95% of the
Company's Share; and by above attempt/fraud/
fabrication, its obvious, the Defendants are trying to
establish their false claim of 50% stake on 27.02.2015.
(while factually they held 42% on that date after transfer
from Defendants-3 to 7).
xi. As per company's records Share Certificate
Nos.57,60,62,64 etc., eventually got transferred by
Mr.A.Shiva Shankar and now standing in the name of
S/Sri.G.Ravi Shankar & G.Parameswaran; whereas,
Defendants claim them to be in their names.
xii. The allotment took place on 02.03.1998 (as per
Company's records) are Share Certificates 67 to 80;
whereas, Defendants claim them to be 104 to 117 (beyond
the series issued by the company).
xiii. Original Share Certificates of the Company do not have
provision for two signatures on transfer endorsements.
xiv. Rear portion of some of the certificates are blank.
6.4. The plaintiffs further averred that the fabricated Share Certificates
were appearing in the fictitious/void agreement dated 08.04.2010. The
defendants were trying to lend life to the fabricated Share Certificates
through the said void agreement dt.08.04.2010. The defendants 1 & 2
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used them in judicial proceedings for their economic gain which would
amount to perjury.
6.5. It was further stated that the cause of action for this suit arose on
08.04.2010 when the defendants fabricated the documents and in
January/February, 2015 when the said documents were filed before the
Company Law Board, Chennai by the defendant Nos.1 and 2 and as the
forged/fabricated documents continued to be in possession of the
defendant Nos.1 and 2, the cause of action was a continuing one and it
was further contended that the suit was filed within the period of
limitation and sought for the above reliefs.
7. The suit was filed in the month of August, 2015. Subsequently,
on 29.04.2016, the defendants filed I.A No.618 of 2016 for rejection of
plaint on the ground that the suit was not maintainable based on the
plaint averments. The defendant Nos.3 to 7 ceased to be shareholders
after they transferred their shares on 27.02.2007 to the defendant No.1
and his family members and to the plaintiff No.2, so that they would
remain equally at 50:50 in the total paid up share capital of the plaintiff
No.1 Company. The agreement dated 08-04-2010 was only a document
made for reconfirmation of the share transfers affected on 27.02.2007 by
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the defendantNos.3 to 7. As such, there was no triable issue or any cause
of action. The plaintiff No.2 indulged in many acts of mismanagement
and oppression and also deceitfully took away 8% of equity shares out
of 50% held by the defendant No.1 and his family members. The matter
was subjudice before the Company Law Board, Chennai Bench in the
C.P. No.40 of 2011. The plaintiffs were avoiding the arguments before
the Company Law Board on one pretext or the other, but on the other
hand they were filing malicious and vexatious civil suits in various Civil
Courts, such as, O.S.No.605 of 2014 in II Additional District Judge,
Ranga Reddy Courts at L.B. Nagar and on similar pleadings, the present
suit was filed. The agreement for transfer of shares on 08.04.2010 was
part and parcel of the subject matter in C.P. No.40 of 2011. The
Company Law Board passed status quo orders on 18.05.2011 restraining
the plaintiff No.2 not to disturb the share holding pattern and share
capital of the plaintiff No.1 Company until further orders. The prayers
of the plaintiffs in the present suit were aimed to disturb the share
holding pattern and violate the status quo orders of the Company Law
Board and would amount to contempt of court. The remedy if any
would lie with the company law board where the respondents were
avoiding appearance and prayed to reject the plaint.
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8. The appellants-plaintiffs filed counter in the said application
contending that the court while exercising jurisdiction under Order VII
Rule 11 of CPC ought to be looking into the plaint and the pleadings
alone, but not the contentions taken by the defendants in their written
statement/counter whereas the defendants were urging the court to
decide the application on the points of their contentions on merits which
could be decided only in the trial. The remedy of seeking cancellation
of instruments under Specific Relief Act exclusively would lie before
the Civil Court and not before the Special Tribunal/Company Law
Board/NCLT (National Company Law Tribunal), Hyderabad. The
subject matter of C.P. No.40 of 2011 before the Company Law
Board/NCLT was an application under Sections 397, 398, 237
(Oppression, Mismanagement and Investigation etc.,) of the Companies
Act, 1956, which could be filed only before the Company Law Board by
share holders under the Companies Act. The appellants - plaintiffs
denied that they were avoiding appearance in the Company Petition and
stated that the appeal was pending before the NCLAT. However, the
situation would not give an entitlement to file an application under
Order VII Rule 11 of CPC.
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9. The learned XI Additional District and Sessions Judge (Fast
Track Court), Ranga Reddy District at Medchal, on considering the
contentions of both the learned counsel, observed that in view of Section
430 of the Companies Act, 2013, the jurisdiction of the Civil Court was
barred and the National Company Law Tribunal was alone empowered
to determine all the issues pertaining to allotment of shares and transfer
of shares etc., as specifically contended in the plaint and by placing
reliance on the judgment of the Hon'ble Apex Court in Shashi Prakash
Khemka (dead through LRs) and another. Vs. NEPC Micon
Limited and others [reported in Civil Appeal Nos.1965-1966 of 2014
decided on 08.01.2019] held that in case of serious dispute as to title, the
matter could be relegated to a civil court, but in respect of all other
issues, such as transfer of shares whether done rightly or wrongly and
any other issues had to be determined by the NCLT, and observed that
the disputes in connection with transfer of shares and the terms of
agreement among plaintiff No.1, defendant No.1 and defendant No.3
had to be determined by the NCLT and that the suit was barred by law,
and rejected the plaint.
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10. Heard Sri K.Rajendran, learned counsel for the appellants -
plaintiffs and Sri B. Chandrasen Reddy, learned counsel for the
respondents - defendants.
11. Learned counsel for the appellants contended that the suit before
the trial court was filed seeking the relief of cancellation of 86 Share
Certificates of the plaintiff No.1-Company together with its alleged
supporting Agreement dated 08.04.2010 under Section 31 of the
Specific Relief Act as those documents were found to be fabricated by
defendant Nos.1 and 2 in collusion with other defendants. The reason
why those instruments were found to be fabricated were narrated under
para No.15(i) to (xiv) of the plaint. The plaintiff No.1-Company
disowned the share certificates as they were not on the Company's
records. The defendant Nos.1 and 2 filed C.P No 40 of 2011 before the
(then Company Law Board) National Company Law Tribunal - NCLT)
alleging oppression, mismanagement and seeking investigation into the
affairs of the Company under Sections 397/398, 402/403 & 237 of
Companies Act, 1956, relying on a fictitious agreement dated
08.04.2010. In the Company Petition, the defendants claimed that they
were 42% stake holders in plaintiff No.1- Company. The plaintiff No.1-
Company filed counter challenging the claim of the defendants and
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urged them to file proof of their claim by placing their share certificates.
In January/February, 2015, the defendant Nos.1 and 2 filed 86 share
certificates to back their claim of 42%. Those share certificates were
found fabricated. Hence, the plaintiff No.1- Company filed the suit in
O.S. No.896 of 2015 before the Civil Court. The defendants filed their
written statement and when the suit in O.S. No.896 of 2015 was at the
stage of framing issues and posted for trial, the defendants pressed for
adjudication of their Application under Order VII Rule 11 filed vide I.A.
No.618 of 2021 seeking rejection of plaint on the following grounds:
i. That there was no Cause of Action for the Plaint.
ii. The defendants Company Petition in C.P. No.40 of 2011
was pending adjudication before the NCLT and the issues
covered by the Suit in O.S. No.896 of 2015 were already
covered by the said C.P.
iii. The Plaintiffs filed a suit in O.S. No.605 of 2014 for
defamation and the plaint in that suit has been rejected under
Order VII Rule 11 holding that NCLT is sesin of the subject,
hence, Civil Court has no jurisdiction, only NCLT has the
jurisdiction.
11.1. Learned counsel for appellants further contended that though in
I.A. No.618 of 2021 defendants had not taken the plea that in view of
provisions under Companies Act, the Suit is barred by law, they
advanced the said stand during argument. The Trial Court
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acknowledged the fact that the suit was filed for cancellation of
fabricated share certificates, but nonetheless, the trial court would draw
conclusion that the suit was to determine the issue of allotment of
shares/transfer of shares. While deciding an application under Order
VII Rule 11 of CPC, only the averments and allegations in the plaint
were required to be considered and that a plaint could be rejected only
on the grounds (a) to (f) under Order VII Rule 11 of CPC, but on no
other grounds. A suit for cancellation of fabricated instruments was a
serious dispute touching title, which could be adjudicated only by Civil
Court and NCLT was bereft of jurisdiction. As there was no specific
provision entrusted to NCLT for cancellation of instruments under
Specific Relief Act, a suit for cancellation of fabricated instruments
would need a full-fledged trial, which could be done only by the Civil
Court. The matter that could be adjudicated by the NCLT was summary
in nature. Under Section 59 of the Companies Act, a person aggrieved
or member could make an application before the NCLT seeking
direction against the Company concerned whereas in the present case,
the company was the plaintiff and filed the suit against a person who
fabricated share certificates. NCLT was empowered under Section 59
of the Companies Act for Rectification of Register i.e., issues relating
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to transfer of shares, omission to enter the name, record the transfer of
shares, deletion of names without cause, delay in entry of name
effecting transfer of shares etc. The defendants' Company Petition
before the NCLT was with regard to the complaint of oppression and
mismanagement by the share holders of the Company. The same had
also not attained finality as the same was pending vide Civil Appeal
No.3792 of 2020 before the Hon'ble Apex Court.
11.2. Learned counsel for the appellants further contended that the
rejection of plaint on the ground of bar of limitation would depend on
the date of constructive notice of the essential facts on which cause of
action was based. It was a triable issue and the suit could not be
dismissed at the threshold. The suit in question was not hit by res-
judicata under Section 11 of CPC and the issue of res-judicata or Section
10 of CPC were not the grounds that could be raised in an application
under Order VII Rule 11 or in an appeal arising out of an order under
Order VII Rule 11 and prayed to allow the appeal by restoring the suit in
O.S No.896 of 2015 to the file of the trial court.
12. Learned Senior Counsel for the respondents, on the other hand,
contended that as per the schedule of the plaint, the share certificates
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issued from Sl. No. 2 to Sl. No.55 were issued between July, 1996-1998
and March, 1988, the share certificates at Sl.No.56 and 57 were issued
in March, 2000, the share certificates at Sl.No.58 to 75 were issued in
August, 2004, the share certificates at Sl.No.76 to 82 were issued in
February, 2005, the share certificates at Sl.No.83 to 86 were issued in
February, 2007 and the share certificates at Sl.No.1 was issued in
September, 2010, as such, they were barred by limitation. Though, the
aspect of limitation was not raised before the court below, the plea of
limitation could be raised at any stage and relied upon the judgments of
the Hon'ble Apex Court in Shyam Lal @ Kuldeep Vs. Sanjeev
Kumar & others 1, N.V.Srinivasa Murthy and Others Vs.
Mariyamma (Dead) By Proposed Lrs2, Ram Prakash Gupta Vs.
Rajiv Kumar Gupta & Others3, Raghwendra Sharan Singh Vs.
Ram Prasanna Singh (Dead)4, T. Arivandandam Vs. T. V. Satyapal
& Another5 and Prem Singh & Ors Vs Birbal & Others6.
(2009) 12 SCC 454
(2005) 5 SCC 548
(2007) 10 SCC 59
(2013) SCC online Patna 1527
(1977) 4 SCC 467
(2006) 5 SCC 353
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12.01. He further contended that the subject matter was also
adjudicated by the NCLT which was having jurisdiction to deal with
such matters as per Section 430 of the Companies Act, 2013 and relied
upon the judgments of the Hon'ble Apex Court in Shashi Prakash
Khemka (dead through LRs) and another Vs. NEPC Micon Limited
and others7 and Rajshree Devi Vs. Bonai Industrial Company
Limited and others8.
12.2. He further contended that the agreement dated 08.04.2010
was subject matter of NCLT in C.P No.40 of 2011. The NCLT vide
order dated 26.10.2017 directed the appellants herein to restore share
holdings of the respondents herein in the ratio of 50:50 in consonance
with the boards resolution dated 27.02.2007 and agreement for transfer
of shares on 08.04.2010 and declared that the said agreement was valid
and legally binding. In challenge of the same, the appellants herein
preferred an appeal against the said judgment. The Hon'ble NCLAT
also vide its order dated 24.01.2020 confirmed the orders passed by the
NCLT and dismissed the Company Appeal (A.T No. 20 of 2018) filed
by the appellants herein. The matter was carried to the Hon'ble Apex
(2019) 18 SCC 569
RSA No.206 of 2022 dated 26.10.2022
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Court. The Hon'ble Apex Court had not suspended the order and SLP
was pending and prayed to dismiss the appeal.
13. As per Order VII Rule 11 of CPC, the plaint can be rejected only
on the limited grounds available in the said provision. It is considered
useful to extract Order VII Rule 11 of CPC:
"11. Rejection of plaint:
(a) where it does not disclose a cause of action;
(b) where the relief claimed is undervalued, and the plaintiff,
on being required by the Court to correct the valuation within
a time to be fixed by the Court, fails to do so;
(c) where the relief claimed is properly valued, but the plaint
is returned upon paper insufficiently stamped, and the
plaintiff, on being required by the Court to supply the
requisite stamp-paper within a time to be fixed by the Court,
fails to do so;
(d) where the suit appears from the statement in the plaint to
be barred by any law:
(e) where it is not filed in duplicate,
(f) where the plaintiff fails to comply with the provisions of
Rule-9.
Provided that the time fixed by the Court for the correction of
the valuation or supplying of the requisite stamp-paper shall
not be extended unless the Court, for reasons to be recorded,
is satisfied that the plaintiff was prevented by any cause of an
exceptional nature for correcting the valuation or supplying
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the requisite stamp-paper, as the case may be, within the time
fixed by the Court and that refusal to extend such time would
cause grave injustice to the plaintiff".
14. The petition under Order VII Rule 11 of CPC filed by the
respondents - defendants would not disclose under which specific
provision falling under (a) to (f), the said application was filed.
15. In the affidavit filed along with I.A No.618 of 2021, it was
contended that the plaint did not disclose cause of action and that the
agreement for transfer of shares dated 08.04.2010 was part and parcel of
the subject matter in C.P. No.40 of 2011 and that it was contended that
the remedy would lie only with Company Law Board.
16. The trial court had rejected the plaint on the ground that the same
was barred by law, in view of the specific provision under Section 430
of the Companies Act, 2013. Though the plea of limitation was not
taken by the respondents - defendants in their application in I.A No.618
of 2021 nor the said aspect was considered by the trial court in the
impugned order in I.A No.618 of 2021, the said plea was taken by the
learned Senior Counsel for the respondents during the arguments before
this Court and contended that the plea of limitation could be raised at
any stage and relied upon several judgments of the Hon'ble Apex Court.
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Though, there is no dispute that the court is required to dismiss a claim
or application if it is time barred, even if the defendant does not raise the
plea of limitation, as Section 3 of the Limitation Act provides that
irrespective of the fact as to whether any defence is set out or is raised
by the defendant or not, in the event a suit is found to be barred by
limitation, every suit instituted, appeal preferred and every application
made after the prescribed period shall be dismissed but it is also well
settled principle that limitation is a mixed question of law and fact and
the court will deal with it after the evidence is concluded and the same
cannot be used to reject the plaint at the threshold. The issues on the
merits of the matter which arise between the parties would not be within
the realm of the court at the preliminary stage.
17. The contention of the learned counsel for the appellants was that
it was specifically pleaded in the plaint that the defendant Nos.1 and 2 in
January/February, 2015 filed photostat copies of 86 nos. of fabricated
Share Certificates before Company Law Board/NCLT. That is, when
the plaintiffs realized, the defendants' intention of making use of the
fabricated Share Certificates to claim a higher stake in the Company. In
the month of August, 2015 (within 7 months) the suit was filed. As
rejection of plaint on the ground of bar of limitation depends on the date
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of constructive notice of the essential facts on which cause of action is
based, it is a triable issue and the suit cannot be dismissed on the
threshold at this stage as per the judgment of the Hon'ble Apex Court in
Salim D. Agboatwala v. Shamalji Oddhavji Thakkar (2021 SCC
OnLine SC 735). Hence, this court does not find any merit in the
contention of the learned counsel for the respondents - defendants for
rejection of plaint on the ground that the suit was barred by limitation.
17.1. The next contention that was raised was that the suit was barred
by res-judicata, as the matter was already adjudicated by the NCLT
having jurisdiction to deal with such matters as per Section 430 of the
Companies Act, 2013.
17.2. The plea of res-judicata is also a mixed question of law and fact
which requires examination of other evidence and the same cannot be a
ground for rejection of plaint under order VII Rule 11(d).
17.3. As per the judgments of the Hon'ble Apex Court in Vaish
Aggarwal Panchayat Vs. Inder Kumar & Ors 9, Sardar Satpal Singh
AIR (2015) SCC 3357
Dr.GRR,J
vs Smt. Saroj Shukla 10 and Hardesh Kakarla Vs.E.Swetha 11, under
Order VII Rule 11 CPC res-judicata is not a ground provided under
clauses (a) to (f). Under Section 11 of CPC which deals with the
principle of res-judicata, no court shall try any suit or issue in which the
matter directly and substantially in issue has been directly and
substantially in issue in a former suit between the same parties or
between parties under whom they or any of them claim, litigating under
the same title, in a court competent to try such subsequent suit or the suit
in which such issue has been subsequently raised and has been heard
and finally decided by such court.
17.4. The contention of the learned counsel for the appellants was that
the subject matter in C.P. No.40 of 2011 and the subject matter in O.S.
No.896 of 2015 were entirely different. The order in C.P. No.40 of
2011 had not yet attained finality as the same was pending before the
Hon'ble Apex Court in Civil Appeal No.3792 of 2020. From the order
dated 27.10.2017 in CP No.40 of 2011, it could be noticed that no
adjudication in respect of subject matter covered by O.S. No.896 of
2015 took place. Admittedly, the matter in C.P. No.40 of 2011 had not
AIR (2015) Chhattisgarh 166
AIR (2015) NOC 257 Hyderabad
Dr.GRR,J
yet attained finality as the same was pending before the Hon'ble Apex
Court in Civil Appeal No.3792 of 2020. The subject matter in CP No.40
of 2011 before the NCLT was a complaint of oppression and
mismanagement filed under Sections 397, 398, 402, 403, 237 of the
Companies Act, 1956 seeking following reliefs:
(a) To appoint a reputed Chartered Accountant or any other valuer to
inspect the records of the 5th and 6th Respondent Company and to
direct the said Companies to transfer the profit made by the said
Respondents to the 1st Respondent Company and pay the same to the
1st Respondent Company.
(b) To injunct the 5th and 6th Respondent Company from dealing
with the clients of the 1st Respondent Company.
(c) To order investigation into the affairs of the 1st, 5th and 6th
Respondent Companies
(d) To appoint an administrator to manage the 1st Respondent
Company until the investigation is done and the shareholding parity
is restored,
(e) To rectify the Register of Members of the 1st Respondent
Company and substitute the name of First Petitioner in the place of
the Second Respondent in respect of 25,550 shares taken away by
the second respondent by deceit and fraud.
(f) To rectify the Register of Members of the 1st Respondent
Company and substitute the name of the Second Petitioner in the
place of 7th Respondent in respect of 37058 shares taken away by the
Second Respondent and Respondent by deceit.
Dr.GRR,J
(g) Direct the Respondents not to convert the 1st Respondent
Company into a private limited Company.
(h) Direct the Respondents not to allot any shares to the 5th or 6th
Respondent Companies or any one claiming through or under them.
17.5. The suit O.S No.896 of 2015 was filed for cancellation of
fabricated instruments (share certificates and fictitious agreement)
pertaining to dispute of title which would fall under Section 31 of the
Specific Relief Act and can be tried only by a Civil Court. NCLT is not
empowered to try suits of such nature and relied upon the judgments of
the High Court of Madras in Gemini Communications Vs. Merrill
Lynch International 12, wherein by extracting the judgment of the
Hon'ble Apex Court, it was held that:
"102. In Dwarka Prasad's case (AIR 2003 SC 2696),
cited first supra, the Supreme Court, in paragraph
Nos.19 and 22, has observed as under:- 19. A bare
perusal of the aforementioned provisions leaves no
manner of doubt that thereby the jurisdiction of the civil
court has not been ousted. The civil court, in the instant
case, was concerned with the rival claims of the parties
as to whether one party has illegally been dispossessed
by the other or not. Such a suit, apart from the general
law, would also be maintainable in terms of Section 6 of
the Specific Relief Act, 1963. In such matters the court
would not be concerned even with the question as to
title/ownership of the property. 22. The dispute
between the parties was eminently a civil dispute and
2014 SCC Online Mad 12856
Dr.GRR,J
not a dispute under the provisions of the Companies
Act. Section 9 of the Code of Civil Procedure confers
jurisdiction upon the civil courts to determine all dispute
of civil nature unless the same is barred under a statute
either expressly or by necessary implication. Bar of
jurisdiction of a civil court is not to be readily inferred.
A provision seeking to bar jurisdiction of civil court
requires strict interpretation. The court, it is well-settled,
would normally lean in favour of construction, which
would uphold retention of jurisdiction of the civil court.
The burden of proof in this behalf shall be on the party
who asserts that the civil court's jurisdiction is ousted.
[See Sahebgouda (dead) by Lrs. and Others vs. Ogeppa
and Others [2003 (3) Supreme 13]. Even otherwise, the
civil court's jurisdiction is not completely ousted under
the Companies Act, 1956."
103. "In Thiruvalluvar Velanmai Kazhagam's case,
(1988) 64 Comp.Cases 304), cited second supra, the
learned Single Judge of this Court has observed as
under:-
''9. "It is well settled that every
presumption should be made in favour of
the jurisdiction of a civil Court. In other
words, the exclusion of Jurisdiction of civil
Courts is not to be readily inferred. Such
exclusion must be either explicitly
expressed or clearly implied. A provision of
law ousting the jurisdiction of a civil Court
must be strictly construed and the onus lies
on the party, seeking to oust the
Jurisdiction, to establish his right to do so".
10. "Section 10 of the Companies Act
defines the Court having jurisdiction under
that Act as the High Court having
jurisdiction in relation to the place at which
the registered office of the company
concerned is situate, except to the extent to
which jurisdiction has been conferred on
any District Court or District Court
subordinate to the High Court in pursuance
of Sub-section (2), which enables the
Central Government by notification in the
Official Gazette to empower any district
Court to exercise all or any of the
jurisdiction conferred by this Act upon the
Court. The Court having jurisdiction under
the Act, as defined under Section 10 of the
Act, shall have power to deal with all
matters, for which provision has been made
in the said Act. Hence, in respect of all
Dr.GRR,J
matters dealt with under the Companies Act,
the Court having jurisdiction is the Court as
defined under Section 10 of the Act. But, in
respect of matters not dealt with by
the Companies Act, or for which
the Companies Act does not provide
remedies, the ordinary Civil Court alone
will have jurisdiction. In other words, the
Civil Court will have no jurisdiction only in
respect of matters falling exclusively within
the jurisdiction under the Companies Act.
We have now to see whether the subject-
matter of the suit is a matter falling within
the ambit of the Companies Act".
17.6. While referring to the judgment of the Hon'ble Apex Court in
R.R. Rajendra Menon (No. 2) Vs. Cochin Stock Exchange Ltd. And
Anr, ((1990) 69 Comp.Cases 256) it was also held that:
"6....... It cannot be held that the jurisdiction of the
civil court in respect of all other matters relating to
a company is barred. The corollary is that, unless a
particular matter is specified in the Act to be dealt
with by the company court, it cannot exercise
jurisdiction merely because it is also a matter which
relates to a company"
7. ..."A Division Bench of this court has held in
Star Tile Works v. N. Govindan, AIR 1959 Ker
254, that the company court has no jurisdiction in
all company matters. The decision arose from a suit
filed in the regular civil court for a declaration that
proceedings of the annual general meeting of a
company are void. One of the questions raised in
the suit related to the jurisdiction of the civil court
to entertain such a suit. The Division Bench held
that such a relief can be granted by the civil
court. The said principle was followed by M. P.
Menon J. in R. Prakasam v. Sree Narayana Dharma
Paripalana Yogam [1980] 50 Comp Cas 611 (Ker).
The following observations of the learned single
judge can be quoted with approval (head-note):
Dr.GRR,J
"Whether for vindicating corporate rights
or personal, whether representative or
individual, the 'action' cannot be confused
with initiation of proceedings before the
company court in all matters. Except in
cases where the Companies Act, 1956,
confers jurisdiction on the company court
or some other authority like the Central
Government or the Company Law Board,
either expressly or by implication, all
other disputes pertaining to a company are
to be resolved through the forum of civil
courts when the disputes are capable of
being resolved by them".
8. ....... "Where a wrong is done by an individual
member, he could insist by recourse to a civil
suit".
107. All the above decisions would collectively
indicate a single point that Section 10 of the Act
does not purport to invest the Company Court with
jurisdiction over every matter arising under the
Act.
113. Admittedly, the alleged breach of agreement
by the defendant's company is not relating to the
internal administration of the defendant's company.
If it is so, we can understand that the scope of
interference by a civil court is limited. But in the
given case on hand, the dispute is pertaining to the
breach of contract between the plaintiff and the
defendant and it is not pertaining to a matter comes
under the purview of the Companies Act and
therefore, this Court is of considered view that the
trial Court is having jurisdiction to entertain the
present suit as the company court does not have
jurisdiction in the matters falling outside the
purview of the Companies Act.
17.7. He further relied upon the judgment of the High Court of
Bombay in Dhirubhai/Dhirajlala H. Desai and others Vs. Lataben
Dr.GRR,J
Abuwalla and others13 wherein also a plea was taken that the relief
sought in the civil court exclusively would fall within the ambit of the
National Company Law Tribunal in view of Section 430 of the
Companies Act, 2013.
The High Court of Bombay held that:
"9..... this is a Suit for administration, one in which
the Plaintiffs seek to establish first and foremost that
they have an entitlement to certain estate assets.
These assets include shares of Defendants Nos. 3 to
5. That declaration of entitlement, title, bequest.
administration and ownership is one that only a Civil
Court can grant. The NCLT is utterly bereft of all
jurisdiction in that regard".
10..... "the fundamental dispute was as to the title to
certain shares. That, the Court held, was a matter
exclusively within the jurisdictional dominion of a
Civil Court".
17.8. He further relied upon the judgment of the High Court of Delhi
in Jai Kumar Arya Vs. Chhaya Devi and another14, wherein the
issue whether the learned Single Judge was barred from passing the
impugned order because of the Section 430 of the Companies Act, 2013
was considered by the Division Bench of the High Court and held that:
(2016) SCC Online Bombay 14089
(2017) SCC Online Delhi 11436
Dr.GRR,J
"94. Section 430 of the Act reads thus:
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".
95. "Parallelly, of course, Section 9 of the
CPC postulates that "the Courts shall
(subject to the provisions herein contained)
have jurisdiction to try all sorts of possible
nature excepting suits of which the
cognizance is either expressly or impliedly
barred."
96. "Clearly, Section 430 bars the Civil
Court from entertaining any suit or
proceeding, in respect of any matter which
the NCLT ―is empowered to determine by
or under this Act or any other law for time
being in force".
99. "While examining the merits of these
rival contentions, we are fully aware of the
interpretative principle, now trite in law,
that provisions which operate to exclude the
ordinary jurisdiction of civil courts are to be
strictly construed, and exclusion of
such jurisdiction is not to be lightly inferred.
The principle of exclusion of jurisdiction is,
moreover, never absolute. In what is
regarded as the classic exposition of the law
on the point, Thankerton, J., speaking for
the Privy Council, in Secretary of State v
Mask & Co., AIR 1940 PC 105, pronounced
thus:
Dr.GRR,J
― "It is settled law that the
exclusion of the jurisdiction of
the Civil Courts is not to be
readily inferred, but that such
exclusion must either be
explicitly expressed or clearly
implied. It is also well settled
that even if jurisdiction is so
excluded, the Civil Courts
have jurisdiction to examine
into cases where the provisions
of the Act have not been
complied with, or the statutory
tribunal has not acted in
conformity with the
fundamental principles of
judicial procedure".
100. "We may also note that U.O.I. v
Tarachand Gupta & Bros, (1971) 1 SCC
486, which cited Mask (supra), worded the
principle a tad differently (in para 22 of the
report):
―The principle thus is that
exclusion of the jurisdiction of the
civil courts is not to be readily
inferred. Such exclusion, however,
is inferred where the statute gives
finality to the order of the tribunal
on which it confers jurisdiction and
provides for adequate remedy to do
what the courts would normally do
in such a proceeding before it. Even
where a statute gives finality, such a
provision does not exclude cases
where the provisions of the
particular statute have not been
complied with or the tribunal has
not acted in conformity with the
fundamental principles of judicial
procedure.
101. As, perhaps, the most authoritative
pronouncement on the issue, the
Constitution Bench of the Supreme Court,
in Dhulabhai v State of M.P., AIR 1969 SC
78, set out the following 7 clear principles
Dr.GRR,J
(of which only the first and last are really
relevant to the present case), to be applied
for deciding whether a suit was barred
under Section 9 of the CPC:
―(1) Where the statute gives a finality to
the orders of the special Tribunals
the civil courts' jurisdiction must be
held to be excluded if there is
adequate remedy to do what the
civil courts would normally do in a
suit. Such provision, however, does
not exclude those cases where the
provisions of the particular Act have
not been complied with or the
statutory Tribunal has not acted in
conformity with the fundamental
principles of judicial procedure.
(2) Where there is an express bar of the
jurisdiction of the court, an
examination of the scheme of the
particular Act to find the adequacy or
the sufficiency of the remedies
provided may be relevant but is not
decisive to sustain the jurisdiction of
the civil court.
Where there is no express
exclusion the examination of the
remedies and the scheme of the
particular Act to find out the
intendment becomes necessary and
the result of the inquiry may be
decisive. In the latter case it is
necessary to see if the statute
creates a special right or a liability
and provides for the determination
of the right or liability and further
lays down that all questions about
the said right and liability shall be
determined by the Tribunals so
constituted, and whether remedies
normally associated with actions in
civil courts are prescribed by the
said statute or not.
Dr.GRR,J
(3) Challenge to the provisions of the
particular Act as ultra vires cannot be
brought before Tribunals constituted
under that Act. Even the High Court
cannot go into that question on a
revision or reference from the decision
of the Tribunals.
(4) When a provision is already
declared unconstitutional or the
constitutionality of any provision is to
be challenged, a suit is open. A writ of
certiorari may include a direction for
refund if the claim is clearly within the
time prescribed by the Limitation
Act but it is not a compulsory remedy
to replace a suit.
(5) Where the particular Act contains
no machinery for refund of tax
collected in excess of constitutional
limits or illegality collected a suit lies.
(6) Questions of the correctness of the
assessment apart from its
constitutionality are for the decision of
the authorities and a civil suit does not
lie if the orders of the authorities are
declared to be final or there is an
express prohibition in the particular
Act. In either case the scheme of the
particular Act must be examined
because it is a relevant enquiry.
(7) An exclusion of the jurisdiction of
the civil court is not readily to be
inferred unless the conditions above set
down apply
102. "From the above authorities, the
primary indicia, which would govern
determination of the question of whether
the jurisdiction of civil courts is, in any
particular case, ousted, or not, would appear
to be (i) whether the decision of the
tribunal, on which jurisdiction is conferred,
Dr.GRR,J
is also attributed finality by the statute, and
(ii) whether such tribunal can do what the
civil court would be able to do and is,
therefore, an efficacious alternative to the
civil court. Even when these two indicia
stand satisfied, the jurisdiction of the civil
court would continue to exist where the
action, complained against, violates the
statute".
104. "Where, therefore, Section 430 uses
the words "by or under this Act" the words
"by" and "under" have to be understood as
conveying different and distinct meanings.
The position in law may, in fact, be treated
as covered by the judgement of
the Supreme Court in Dr. Indiramani
Pyarelal Gupta V. W.R.Natu, AIR 1963 SC
274,which holds as under:
―A more serious argument was
advanced by learned counsel based
upon the submission that a power
conferred by a bye-law framed
under Section 11 or 12 was not one that
was conferred ―by or under the Act or
as may be prescribed‖. Learned counsel
is undoubtedly right in his submission
that a power conferred by a bye- law is
not one conferred ―by the Act‖, for in
the context the expression ―conferred
by the Act‖ would mean ―conferred
expressly or by necessary implication
by the Act itself‖. It is also common
ground that a bye-law framed
under Section 11 or 12 could not fall
within the phraseology ―as may be
prescribed‖, for the expression
―prescribed‖ has been defined to mean
―by rules under the Act‖ i.e. those
framed under Section 28 and a bye-law
is certainly not within that description.
The question therefore is whether a
power conferred by a bye-law could be
held to be a power ―conferred under
the Act. The meaning of the word
―under the Act is well known. ―By
Dr.GRR,J
an Act would mean by a provision
directly enacted in the statute in
question and which is gatherable from
its express language or by necessary
implication therefrom. The words
―under the Act‖ would, in that context,
signify what is not directly to be found
in the statute itself but is conferred or
imposed by virtue of powers enabling
this to be done; in other words, bye-
laws made by a subordinate law-
making authority which is empowered
to do so by the parent Act. The
distinction is thus between what is
directly done by the enactment and
what is done indirectly by rule-making
authorities which are vested with
powers in that behalf by the Act.
107. "The issue of whether the civil suit
filed by the plaintiffs before this Court was
maintainable, or was barred by Section
430 of the Act, would, therefore, depend on
whether the NCLT was empowered to
exercise jurisdiction, on the issue, under the
Act. Mr Chandhiok would rely, for
supporting his stand that jurisdiction does
stand expressly conferred, by the Act, on
the NCLT in respect of the subject matter of
CS (OS) 284/2017, on Sections
169(4) and 241 thereof".
108. "As already reproduced hereinabove,
the relief, in CS(OS) 285/2017, as also in
IA 7856/2017 and IA 9618/2017 filed
therein, was essentially seeking restraint,
against the defendants, from acting upon
the notice issued by the directors, or on any
resolution taken at the meeting
contemplated by such notice which, in turn,
from Directorship of the Company. Was
such a dispute amenable to adjudication by
the NCLT, under Section 169(4) or Section
241? The fate of this innings, in the present
Dr.GRR,J
litigative tournament, would depend on the
answer thereto".
109. "Section 169 (4) of the Act, in our
opinion, does not apply at all. The mere
reference, to the Tribunal, in the said
proviso, cannot divest the Civil Court of its
ordinary jurisdiction to entertain the suit
filed by the plaintiffs".
125. "The inevitable outcome of the above
discussion is that the invocation, by Mr
Chandhiok, of Section 430 the Act, to non-
suit the plaintiffs, is misplaced. Per
sequitur, CS (OS) 285/2017 has to be held
to be competent".
130. " Further, it has to be borne in mind
that the original invocation of jurisdiction
of the NCLT was not by the plaintiffs, but
by the defendants, by way of Company
Petition 136/2014, alleging operation and
mismanagement in affairs of the company.
This is not, therefore, a case of which the
plaintiffs could be accused of forum
shopping by invoking the jurisdiction of
NCLT and later of this Court for identical
reliefs. The resort, by the plaintiffs, to the
jurisdiction of the NCLT, by way of IA No.
17/KB/2017, filed in Company Petition No.
136/2014 (supra), was only because the
dispute between the plaintiffs and the
defendants, was actually in seisin before the
NCLT, at the time, in the said company
petition. Whether they ought to have done
so, and whether the NCLT had the
jurisdiction to grant interim relief, as it did,
on 18th May 2017, may be moot questions;
we forbear from expressing any view
thereof, as the order of the NCLT is not
under challenge before us. Be that as it
may, the filing of the said IA, by the
plaintiffs, cannot foreclose their right
to invoke the ordinary jurisdiction of this
Court for seeking declaration and
mandatory injunction. It cannot be,
Dr.GRR,J
therefore, be said that the plaintiffs were
approaching different fora seeking similar
reliefs".
17.9. Learned counsel for the appellants also placed the judgment of
the Hon'ble Apex Court in Shashi Prakash Khemka (dead) Through
legal representatives and another Vs. NEPC Micon (Now NEPC
India Limited) And others 15 relied by the trial court while passing the
impugned order wherein it was held that:
"the effect of the Section 430 of Companies
Act, 2013 is that in matters in respect of which
power has been conferred on the NCLT, the
jurisdiction of the civil court is completely
barred".
6. "It is not in dispute that were a
dispute to arise today, the civil suit
remedy would be completely barred
and the power would be vested with
the National Company Law Tribunal
(NCLT) under Section 59 of the said
Act".
17.10. The judgment of the Hon'ble Apex Court in Ammonia
Supplies Corporation (P) Ltd. Vs. Modern Plastic Containers Pvt.
(2019) 18 SCC 569
Dr.GRR,J
Ltd. and Others 16 was also extracted in the above case in Para No.4
and held that:
4. "The learned counsel for the appellants has
drawn our attention to the view expressed in
Ammonia Supplies Corporation's case, to
canvass the proposition that while examining
the scope of Section 155 (the predecessor
to Section 111), a view was taken that the
power was fairly wide, but in case of a serious
dispute as to title, the matter could be relegated
to a civil suit. The submission of the learned
counsel is that the subsequent legal
developments to the impugned order have a
direct effect on the present case as
the Companies Act, 2013 has been amended
which provides for the power of rectification of
the Register under Section 59 of the said Act".
17.11. He further relied upon the judgment of High Court of Kolkata
in Phool Chand Gupta and others Vs. Mukesh Jaiswal and others 17
wherein also the provisions of Sections 58, 59, 430 of the Companies
Act, 2013 are considered with regard to the ousting of jurisdiction
under the Code of Civil Procedure, 1908 and held that:
40. "As a corollary if it appears that the disputed
questions of the facts are complicated and cannot be
conveniently decided in a summary procedure the
jurisdiction of the Civil Court is not ousted.
Although it cannot be disputed that the NCLT may
have jurisdiction to decide the title of any person
who is a party to the application urging that his
(1998) 7 SCC 105
(2023) SCC Online 1812
Dr.GRR,J
name has been wrongly omitted from the register or
should have been entered in the register in a
proceeding under Section 59 of the present Act
or Section 155 read with Section 111 of the
Companies Act, 1956, however, the issue in the suit
is not one of rectification. As observed in
{(Ammonia Supplies Corporation Pvt.Ltd Vs.Modern
Plastic Containers Pvt.Ltd((1998) 94 Comp Cas 310
(SC); (1998) 7 SCC 105)} and quoted with approval in
{IFB Agro Industries Ltd. Vs. Sicgil India Ltd ( (2023)
236 Comp Cas 316 (SC); (2023) 4 SCC 209) } in
paragraph 22 "the very word "rectification" connotes
something what ought to have been done but by
error not done and what ought not to have been done
was done requiring correction. Rectification in other
words is the failure on the part of the company to
comply with the directions under the Act." The
relevant portion of the judgment in IFB Agro (supra)
is as under:
"The relevant portion of the judgment in Ammonia is as under:
"There could be no doubt any question raised
within the peripheral field of rectification, it is the
court Under Section 155 alone which would have
exclusive jurisdiction. However, the question raised
does not rest here. In case any claim is based on
some seriously disputed civil rights or title, denial of
any transaction or any other basic facts which may
be the foundation to claim a right to be a member
and if the court feels such claim does not constitute
to be a rectification but instead seeking adjudication
of basic pillar some such facts falling outside the
rectification, its discretion to send a party to seek his
relief before the civil court first for the adjudication
of such facts, it cannot be said such right of the court
to have been taken away merely on account of the
deletion of the aforesaid proviso. Otherwise under
the garb of rectification one may lay claim of many
such contentious issues for adjudication not falling
under it. Thus in other words, the court under it has
discretion to find whether the dispute raised is really
for rectification or is of such a nature that unless
decided first it would not come within the purview
of rectification. The word "rectification" itself
Dr.GRR,J
connotes some error which has crept in requiring
correction. Error would only mean everything as
required under the law has been done yet by some
mistake the name is either omitted or wrongly
recorded in the Register of the company....."
In other words, 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.... 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 power for rectification within its
field there could be no doubt the Court as referred
Under Section 155 read with Section
2(11) and Section 10, it is the Company Court alone
has exclusive jurisdiction...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 clocked under the
nomenclature rectification does not mean the court
cannot see the substance after removing the cloak.
The Question for scrutiny before us is the
peripheral field within which the Court could
exercise its jurisdiction for rectification. As
aforesaid, the very word "rectification" connotes
something what ought to have been done but by
error not done and what ought not to have been done
was done requiring correction. Rectification in other
words is the failure on the part of the company to
comply with the directions under the Act.
Sub-section (1)(a) of Section 155 refers to a case
where the name of any person is without sufficient
cause entered or omitted in the Register of Members
of a company. The word "sufficient cause" is to be
Dr.GRR,J
tested in relation to the Act and the Rules. Without
sufficient cause entered or omitted to be entered
means done or omitted to do in contradiction of the
Act and the Rules or what ought to have been done
under the Act and the Rules but not done. Reading
of this Sub-clause spells out the limitation under
which the court has to exercise its jurisdiction. It
cannot be doubted that in spite of exclusiveness to
decide all matters pertaining to the rectification it
has to act within the said four corners and
adjudication of such matters cannot be doubted to be
summary in nature. So, whenever a question is
raised the court has to adjudicate on the facts
and circumstances of each case. If it truly is
rectification, all matters raised in that connection
should be decided by the court Under Section
155 and if it finds adjudication of any matter not
falling under it, it may direct a party to get his right
adjudicated by a civil court.....
It is evident from the above that while
interpreting Section 155, this Court has held that the
power of CLB is narrow and can only consider
questions of rectification. If a petition seeks an
adjudication under the garb of rectification, then the
CLB would not have jurisdiction, and it would be
duty-bound to re-direct the parties to approach the
relevant forum. The Court also held that the words
'sufficient cause' cannot be interpreted in a manner
which would enlarge the scope of the provision.
The decision in Ammonia was followed by this
Court even after the deletion of Section 155 and
insertion of Section 111A. This Court, in Standard
Chartered Bank v. Andhra Bank Financial Services
Ltd. and Ors. (2006) 6 SCC 94 and Jai Mahal Hotels
(P) Ltd. v. Devraj Singh and Ors. (2016) 1 SCC 423,
held that even though Section 111(7) of the 1956
Act11 seemingly enlarges the power of the CLB, the
power of rectification continues to remain summary
in nature and if any seriously disputed questions
Dr.GRR,J
arise, the Company Court should relegate the parties
to a forum which is more appropriate for
investigation and adjudication of such disputed
questions."
41. NCLT thus, would have jurisdiction to decide a
rectification proceeding where facts are self evident
and does not call for any serious enquiry or
adjudication of fraud. It would depend on the facts
of a case. However, the present proceeding is not for
rectification although eventually it may lead to the
same in the event the suit is decreed."
17.12. Learned counsel for the appellants further placed his reliance
upon the judgment of the High court of Delhi in Shazia Rehman Vs.
Anwar Elahi & others 18 wherein also similar aspects were raised
under Section 59 of the Companies Act and that the suit was barred
under Section 430 of the Companies Act, 2013, it was held that:
14. "In the respective written statements filed by
Defendant No. 1 and Defendant No. 2, they are
disputing the title of Plaintiff qua the Transferred
Shares and at the same time Defendant No. 1 is
asserting his title in relation to the Transferred Shares.
As per section 59 (1) of the Companies Act, 2013, in
the event a company, (a) enters the name of a person in
the register of its members, without sufficient cause; (b)
omits the name of a person in the register of its
members, without sufficient cause (c) delays in entering
name of a person in its register of members, the
aggrieved person may, in this connection, file an appeal
before the learned National Company Law Tribunal As
per Section 59 (2), the learned NCLT may direct the
(2023) SCC Online Del 4807
Dr.GRR,J
company to rectify its register of members or to register
the transfer of shares. As can be seen from the
provisions of Section 59 (1) of the Companies Act,
2013, only the company's action (and not individual
actions), of which a person is aggrieved, in relation to
(a) an incorrect entry; (b) omission to make entry; or (c)
delay in making the entry, of the person's name, in its
register of members can be challenged before learned
NCLT, and the action of an individual shareholder /
member (in the present case, the Defendant No. 1)
cannot be challenged. Similarly, in terms of Section
59(2), the learned NCLT can only direct the company
to rectify its register of members or to register the
transfer of shares".
15. "In the present case, prior to rectification of the
register of members, inter alia, (a) the fraudulent
execution of the share transfer forms would be required
to set aside and declared void ab initio; and (b) the
question of title of the Plaintiff in relation to the
Transferred Shares would be required to be
adjudicated; (c) the question whether Plaintiff was paid
the consideration for the so called transfer shares be
required to be examined; and (d) the Plaintiff would be
required to be declared as the owner of the Transferred
Shares".
16. "In terms section 59 of the Companies Act, 2013,
the learned NCLT is not empowered to decide and / or
grant reliefs of the above nature, predominantly
pertaining to individual rights, but only empowered to
direct the company to rectify its register of members, if
it finds merit in the case of the person aggrieved.
Additionally, in terms section 59 of the Companies Act,
2013, aided by Rule 70 of the NCLT Rules, 2016, in a
case where the provisions of Section 59 are applicable,
the NCLT is only empowered to superficially examine
the title of person aggrieved, in respect of the shares of
which he / she is seeking rectification (based on the
documents on record), but not to decide the complex
question of a seriously disputed title or grant of
declaratory / injunctive reliefs, again which
predominantly pertain to individual rights of the
Plaintiff".
Dr.GRR,J
17. "Therefore, from the conspectus of the aforesaid, in
case of individual rights of a member of a company,
such as in the present case, there is no remedy under
the Companies Act, 2013, the said right can be
enforced in the civil court. In Naresh Dayal & Ors vs
The Delhi Gymkhana Club Ltd . & Ors. 2021 SCC
Online Del 91 the Court held Individual members of a
company can sue in a civil court to protect their
individual rights. Ld. NCLT has no jurisdiction to
decide cause of action over which it has no power
under Companies Act".
18. "Even otherwise, the case in hand cannot be
adjudicated by the learned NCLT as the subject matter
of the suit pertains to fraudulent transfer of the
Transferred Shares, as elaborated hereinabove. The
Plaintiff has pointed out the fraudulent act of the
Defendant No. 1 in the Plaint. The Section 59 of the
Companies Act, 2013 does not envisage an adjudication
by the Ld. NCLT in relation to the frauds committed by
the company or individuals. In the present case, the
specific averments in the Plaint point towards fraud
committed by the Defendants No. 1 and 2. The
allegations of fraud are to be adjudicated upon only by
the civil court through the detailed and meticulous
process of trial before it. In Mukesh Jaiswal v. Phool
Chand Gupta & Ors., 2022 SCC OnLine Cal 3957 the
Court held the Ld. NCLT cannot decide the question of
fraud as the Plaintiff has taken specific ground of
fraud".
19. "Per section 430 of Companies Act, 2013 civil
court's jurisdiction is diminished only to an extent the
Ld. NCLT has been correspondingly empowered. A
bare reading of section 430 of the Companies Act,
2013, makes it clear the extent of the ouster of the
jurisdiction of the civil court is directly proportionate to
the extent of conferment of jurisdiction on the Ld.
NCLT. Further, it is settled law the exclusion of the
jurisdiction of the Civil Courts is not to be readily
inferred, but that such exclusion must either be
explicitly expressed or clearly implied. There is a thin
line in appreciating the scope of jurisdiction of Ld.
NCLT. In the present case, the jurisdiction of the Ld.
NCLT would have been exclusive if the matter truly
pertained to rectification of register of members.
Dr.GRR,J
However, if the issue is alien to rectification of register
of members such matter would not be within the
exclusive jurisdiction of the Ld. NCLT".
20. "In the present case, the Plaintiff has challenged the
fraudulent transfer of the Transferred Shares by
Defendants No. 1 and 2 in favour of Defendant No. 1,
and is not seeking rectification. Needless to mention
that upon grant of the relief sought by the Plaintiff (i.e.
after the question of title and ownership of the
Transferred Shares is decided), rectification of the
register of members would be a consequential and
subsequent step".
21. "Thus, in the present matter, the question relates to
disputed title and fraudulent transfer of the Transferred
Shares. Therefore, learned NCLT, being a summary
jurisdiction, is not empowered to decide such questions
and said questions can only be decided by a civil courts
i.e. this Hon'ble Court. Accordingly, the jurisdiction of
this Hon'ble Court is not barred".
22........... "In Jai Mahal Hotels Pvt. Ltd. vs. Devraj
Singh (2016) 1 SCC 423 the Court held the
rectification jurisdiction is exclusive if the matter truly
relates to rectification but if the issue is alien to
rectification, such matter may not be within the
exclusive jurisdiction of the Company Court/ Company
Law Board. If a seriously disputed question of title
arose, the Company Court should relegate the parties to
a suit, which was more the appropriate remedy for
investigation and adjudication of such seriously
disputed question of title. In Standard Chartered Bank
vs Andhra Bank Financial Services and Ors., (2006) 6
SCC 94 the Court held the jurisdiction exercised by the
Company Court in relation to rectification of register of
member is somewhat summary in nature and if a
seriously disputed question of title arose, the Company
Court should relegate the parties to a suit, which was
more the appropriate remedy for investigation and
adjudication of such seriously disputed question of
title.........".
24........... "In the present matter, as, the Plaintiff is
alleging fraud on the part of Defendant No.1 and
asserting her individual rights of title (and other rights
Dr.GRR,J
and interest) qua the Transferred Shares, and not
rectification of register of members, therefore, the said
judgment would not be applicable in the facts and
circumstances of the present case.......".
18. Thus, as seen from the above judgments of various High courts,
the Tribunal has power only to decide the issue of rectification of
register of numbers and has no power to decide the issue of title. The
exclusive jurisdiction vested with the Company Law board/NCLT, is
only in respect of rectification of register. However, the right, title and
interest in shares can only be determined in a civil suit and rectification
of register would only be a subsequent step after the question of title
and ownership of shares is decided. A serious disputed question of title
cannot be decided by the Company Law Board and that the jurisdiction
of the Company Law Board is summary in nature.
19. Learned counsel for the respondents relied upon the judgment of
the High Court of Orissa in Rajshree Devi Vs. Bonai Industrial
Company Limited and others, wherein after referring to the judgment
of the High Court of Rajasthan in Eternit Everest Limited Vs.
Neelamani Bhartiya 19 on similar facts wherein the plaintiff stated that
AIR 1999 RAJ 235(1)
Dr.GRR,J
he had signed on the transfer deeds and kept them along with the share
certificates and ultimately it was found that someone had possessed the
transfer deeds and original shares and put them up before the company
that the shares were being registered in their names held that, it was
clearly a case of cancellation of such registration of shares in the name
of the transferees obtained by misrepresentation or any other reason,
there is no question of declaration because when the register is
rectified, automatically the shares would revert back to the plaintiff.
20. He also placed reliance upon the judgment of the Hon'ble Apex
Court in Shashi Prakash Khemka and others and of the Delhi High
Court in Sas Hospitality Private Ltd. & Another Vs. Surya
Constructions Private Limited & Others 20, wherein it was held that
NCLT has wide and expansive powers to adjudicate the issues with
respect to the affairs of a company, and that the Hon'ble Apex Court in
Union of India Vs. R.Gandhi 21 and in Madras Bar Association Vs.
Union of India 22 held that:
2018 SCC OnLine Del 11909
(2010) 11 SCC (1)
(2015) 8 SCC 583
Dr.GRR,J
"NCLT has been created by specific amendment in
the law and upheld the constitution of NCLT and
observed that the bar under Section 430 of 2013 Act
being absolute in nature, the jurisdiction to adjudicate
the disputes raised in the present case rests with the
NCLT and justified the rejection of plaint under Order
VII Rule 11 of CPC".
21. Learned counsel for the respondents also relied upon the order in
I.A No.959 of 2015 in O.S No.605 of 2014 dated 18.11.2016 wherein
the II Additional District and Sessions Judge, Ranga Reddy District had
allowed the petition filed by the defendants 3 to 7 under Order VII
Rule 11 of CPC rejecting the plaint filed by the plaintiffs considering
that the suit was barred under law of limitation, lack of cause of action,
lack of jurisdiction of the court as the same was to be exclusively
decided by the Company Law Tribunal.
22. In Shashi Prakash Khemka's case, the observations of the
Hon'ble Apex Court were not in the context of disputed title to the
shares. The observations of the Hon'ble Apex Court that the NCLT
would have exclusive jurisdiction was only in the context of Section 59
of the Companies Act, 2013 whereas, in the present matter as the
plaintiff is alleging fraud on the part of the defendant No.1, what is to
be ascertained was individual right of title 'qua' the transferred shares
and not rectification of register of members.
Dr.GRR,J
23. Though, in para No.15 of the plaint, several reasons were stated
by the plaintiffs for considering the instruments as being fabricated
under 1 to 14 and the same were also reproduced by the trial court in its
impugned order in para No.13 as A to N, had drawn the conclusion that
the suit was filed to determine the issue of allotment of shares/transfer
of shares which was incorrect. As such, the said order is considered as
contrary to law and against the contours of Order VII Rule 11 of CPC
and against the well settled legal prepositions and on misconstrued facts
of the case.
24. The contentions of the learned counsel for the respondents
cannot be looked into at this stage, as the averments of the plaint alone
has to be considered to reject a plaint and the defence of the defendants
could not be considered while deciding the merits of the application.
25. As per the judgment of the Hon'ble Apex Court in Srihari
Hanumandas Totala Vs. Hemant Vithal Kamat 23 and in Kuldeep
Singh Pathania vs Bikram Singh Jaryal 24, the cause of action is a
bundle of facts which are required to be proved by the plaintiff for
(2021) 9 SCC 99
(2017) SCC Online 59
Dr.GRR,J
obtaining relief against the defendant. As the plaint would disclose the
cause of action in several words particularly with regard to fabrication
of share certificates as mentioned in para Nos.15 (1 to 14), the plaint
cannot be rejected on the ground of lack of cause of action. As such,
this court does not find any merit in rejecting the plaint under Order VII
Rule 11 of CPC for lack of cause of action or on the ground that it was
barred by law under Section 430 of the Companies Act or under the
Limitation Act or on the principle of res-judicata.
26. In the result, the appeal is allowed by setting aside the order and
decree dated 01.04.2022 passed in I.A No.618 of 2021 in O.S No.896
of 2015 by the learned XI Additional District and Sessions Judge (Fast
Track Court), Ranga Reddy District at Medchal and the suit is restored
to its file. There shall be no order to costs.
Pending miscellaneous applications, if any, shall stand closed.
_____________________
Dr. G. RADHA RANI, J
Date: 25.10.2024
dsv
