Jurisdiction of Civil Courts in Company Law Matters

The conclusion of a single lawsuit can have far-reaching consequences for a business or conglomerate of businesses, potentially damaging the interests of the company’s founders, top executives, investors, and other key constituents. Lawmakers have been cognizant of the fact that speed is of the utmost essential in arbitrating corporate issues because even a single dispute can have a profound effect on the existence of a firm. Nevertheless, the Administration’s attempts to create a reliable framework for adjudicating corporation disputes have had varying degrees of success. The High Courts, the Company Law Board, and the Board of Industrial and Financial Reconstruction (BIFR) are just a few of the bodies that have developed over time to exercise authority in corporate concerns.

It has long been a contentious issue whether or not a civil court possesses competence over issues relating to corporate law. The fundamental argument against the civil court’s authority is that the Company Law Board’s status has been maintained at the same level as the Civil Court, necessitating the filing of an appeal with the High Court against any judgement or order of the Company Law Board. It is sometimes argued that the authority of the civil court system should be disregarded because a separate body has been set up to rule on cases involving corporation law.

In its 1952 report, The Bhabha Committee[i] on company law reform first emphasised the importance of speedy resolution of company law disputes by suggesting that such cases be assigned to a dedicated division within the High Courts. Similarly, The Eradi Committee[ii] concluded that the current system of multiple forums for litigating company affairs caused considerable slowdowns in case disposal. It was therefore advocated for the formation of a single nationwide tribunal with the authority to handle all matters related to corporate rules, financial distress, wrapping up, etc. In congruence to the committee, the government acted swiftly to enact The National Company Law Tribunal also known as the NCLT and National Company Law Appellate Tribunal or NCLAT. However it was the R Gandhi case[iii] that affirmed the position of such tribunals by pertaining them to be constitutionally valid. What happened was that prolonged litigation challenging the constitutional legitimacy of the formation of the NCLT and NCLAT slowed the Government’s goal of speeding up the establishment of specialised corporation law courts. Thus inter alia, this judgement helped in removing the confusion and help bring some clarity on the authority of such tribunals.

The basic courts are the civil courts, which have authority over most (but not all) civil suits. Code of Civil Procedure, 1908[iv] governs the administration of civil courts in India. From the foregoing, it follows that the civil courts have jurisdiction over all cases of a civil nature, with the exception of those over which they have been expressly or impliedly denied. The same was held in cases like Radha Kishan v. Ludhiyana Municipality[v]. The cases do not make it easy to judge the situation on the superiority of authority between the two. While cases like Maharaja Exports and Another v. Apparels Exports Promotional Council[vi] and Dwarka Prasad Agarwal v. Ramesh Chandra Agarwal[vii] have held that Company proceedings are subject to the jurisdiction of the civil court, as the Company Act of 1956 makes no clear provision to the contrary. Multiple decisions have made it abundantly obvious that the Civil Court retains exclusive jurisdiction over all matters of civil law, including those arising under Company Law.

The “Invesco Judgment” refers to the recent ruling in Zee Entertainment Enterprises Limited v. Invesco Developing Markets Fund[viii]. The single judge of the Bombay High Court ruled that Section 430[ix] of the Act does not preclude the Court from deciding any case arising under the Act, and that the Court therefore has jurisdiction to rule on the legality of Invesco’s requisition notice under Section 100(4)[x] of the Act to call for an extraordinary general meeting of Zee. While the Bombay HC did rule that it has jurisdiction to hear Zee’s civil claim, it did not agree with Invesco’s argument that it lacked jurisdiction to hear Zee’s challenge to the legality of Invesco’s EGM requisition notice issued under Section 100(4)[xi] of the Act, which Invesco had filed. An EGM is a meeting of a group’s members, a company’s shareholders, or a government agency’s employees that is held at an unusual time and place.[xii]  In addition, Section 430, which provides for exclusive NCLT/NCLAT jurisdiction over all company law cases and tries to prevent a situation in which the NCLT and the civil courts have contemporaneous jurisdiction over matters related to company law, cannot be undermined by the National Company Law Tribunal Rules.

It goes without saying that while the Bombay High Court was exercising its ordinary civil jurisdiction, the NCLT is not subordinate to it. While emphasising that it was not interfering with the NCLT’s ability to rule on the case, the Bombay High Court still barred Invesco from submitting its case before the tribunal. However, a Full Bench of the Bombay HC explained in Export Credit Guarantee Corporation of India v. Annamma Phillips[xiii] that Section 41(b)[xiv] would also bar a court from stopping any person(s) from initiating a process in a court that is not subordinate to the injuncting court. This means that the Bombay High Court could not have issued an injunction prohibiting the NCLT or any party from initiating or continuing proceedings under Section 430 of the Act or Section 41(b) of the Specific Relief Act, 1963. In contrast, the judgement of R Gandhi case clearly provides that –“when a Tribunal is constituted under the Companies Act, empowered to deal with disputes arising under the said Act and the statute substitutes the word “tribunal” in place of “the High Court,” necessarily there will be “wholesale transfer” of company law matters to the tribunals.”

It is with this respect that on October 28, 2021, a petition for review of the Invesco Judgment was lodged, and it is currently being considered by a panel of judges from the Bombay High Court’s division bench.

To conclude, a more concerning trend would be for plaintiffs to assert that the civil courts have “residuary jurisdiction” to handle any dispute arising out of or in connection with those elements of the Act that are not listed in the fee schedule established in the NCLT Rules. This might lead to parties arguing that NCLTs are meaningless since they are unable to resolve disputes arising out of or related to the aforementioned clauses, using the Invesco Judgment as authority.

[i] Report of the Company Law Committee, 1952, chaired by Mr. C.H. Bhabha, (India) https://indianculture.gov.in/reports-proceedings/report-company-law-committee-1952

[ii] Report of Eradi Committee, July 31, 2000, Law relating to Insolvency and Winding up of Companies, chaired by Justice V Balakrishna Eradi,

[iii] Union of India v. R Gandhi, President, Madras Bar Association, (2010) 11 SCC 1

[iv] Code of Civil Procedure, 1908, No.5, Acts of Parliament, 1908, (India)

[v] Radha Kishan v. Ludhiyana Municipality, 1963 AIR 1547

[vi] Maharaja Exports and Another v. Apparels Exports Promotional Council, 1986 (60) CC 353.

[vii] Dwarka Prasad Agarwal v. Ramesh Chandra Agarwal, (2003) 117 Com cases 206 (Sc)

[viii] Zee Entertainment Enterprises Limited v. Invesco Developing Markets Fund, APPEAL (L) NO. 25420 OF 2021

[ix] The Companies Act, 2013, §430, No.18, Acts of Parliament, 2013, (India)

[x] The Companies Act, 2013, §100(4), No.18, Acts of Parliament, 2013, (India)

[xi] id

[xii] Investopedia- https://www.investopedia.com/terms/e/egm.asp

[xiii] Export Credit Guarantee Corporation of India v. Annamma Phillips, 2010 (5) Mh. L. J. 659.

[xiv] The Specific Relief Act, 1963, §41(b), No.47, Acts of Parliament, 1963, (India)

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