JURISDICTION OF CIVIL COURTS IN COMPANY LAW MATTERS

INTRODUCTION

Civil courts have jurisdiction to try all suits of a civil nature except those suits of which the cognizance is either expressly or impliedly barred. In India the functioning of Civil Courts is guided by the Code of Civil Procedure, 1908. Civil courts have a jurisdiction over company law matters but after the National Company Law Tribunal was introduced by the Companies Act, 2013 the power to try all matters related to company law was given to the Tribunal.

CIVIL COURT’S JURISDICTION IN RELATION TO COMPANY LAW MATTERS

Section 9 of Code of Civil Procedure, 1908[1] provides that the civil court has jurisdiction to try a suit if the suit is of civil nature and the cognizance of such suit should not have been expressly or impliedly barred. Th jurisdiction of civil courts has been kept at par with the Company Law Board so that in any case where the civil court is barred from adjudicating a particular issue it may be transferred to the Tribunal.

In the case of Shashi Prakash Khemka v NEPC Micon & Ors[2], while determining the question as to whether an issue relating to transfer of shares should be adjudicated by civil courts or by the Company Law Board. It was held that matters in which the power has been conferred on the National Company Law Tribunal, the jurisdiction of civil courts is completely barred. It was alleged that the dispute that was in question was the title of shares and therefore the civil courts should have the power to adjudicate the matter.

POWER OF NATIONAL COMPANY LAW TRIBUNAL

Section 241, 242 of the Companies Act, 2013[3] gives power to the Tribunal. It states that the tribunal has the power to do justice to the parties and can pass an order for the smooth conducting of business even in absence of finding of oppression and mismanagement.

In the case of A Company, re[4], it was held that Company law Board can grant relief against a respondent who is no longer a member and such relief can possibly enter to requiring him to purchase the company’s shares.

This section provides that without prejudice to the generality of the powers of the Company Law Board, any order under Section 241 may provide for-

  1. The purchase of the shares or interest of any members of the company by other members or by the company. This kind of relief was granted in Mohan Lal Chandumall v Punjab Co Ltd[5].
  2. Removal of the managing director, manager or any of the director of the company.
  3. Appointment of such number of persons as directors who may be required by the Tribunal to report to it in such matters as the Tribunal may direct.
  4. Imposition of costs as may be deemed fit by the Tribunal
  5. Any other matter for which in the opinion of the Tribunal, it is just and equitable that provision should be made.

The Tribunal also has the power to direct the partition of assets of even a listed company and reducing the capital of the company to that extent. In the case of Sanjivbhai Kirtibhai Patel v Biocare Remedies P. Ltd[6], the Tribunal did not cancel the allotment and purchase of shares by respondents even though the same was proved to be an act of oppression against the minority because it was not in the interest of the company to declare interest in authorized share capital is illegal.

The powers provided to the Tribunal are not affected by the existence of an arbitration clause. The Tribunal may in its discretion refer the matter to arbitration in terms of the party’s agreement to exercise any respect of matters which are outside the scope of the arbitration clause. It also has the power to itself do the valuation. In the case of Solitaire Hotels (P) Ltd, re[7], the Tribunal took into account the financial position of the company and the petitioner’s stake in it and fixed to do so, the matter should pay out the other and if they failed to do so, the matter should be referred to the statutory auditors for appropriate valuation.

The Tribunal has the power to provide interim relief on the application of any party to a proceeding. The power to provide interim relief in a case is incidental to the power of providing substantive relief. Any order that is passed by the Tribunal has binding effect upon the company and on all the members, depositors and auditor including audit firm or expert or consultant or advisor or any other person associated with the company. In the case the application is found to be frivolous or vexatious, it has to be rejected for reasons to be recorded in writing[8].

Any company which fails to comply with an order passed by the Tribunal shall be punishable with fine of not less than Rs 5,00,000 but may extend to Rs 25, 00,000. Every defaulting officer is punishable with imprisonment extending to three years and fine of not less than Rs 25,000 extending up to Rs 1,00,000.

CIVIL COURT NOT TO HAVE JURISDICTION

According to Section 430 of the Companies Act, 2013[9], no civil court is to have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force. It also states that no jurisdiction should 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 Appellate Tribunal.

In the case of Yogesh K Shah v Dilipbhai K Shah[10], a suit was instituted which alleged irregularities in the administration by a company. An injunction was sought against the directors from transferring company’s property. It was held that the civil court has jurisdiction to that extent.

CONCLUSION

Civil courts have jurisdiction over matters that are civil in nature. The Code of Civil Procedure, 1908 provides various matters upon which the civil has jurisdiction, it also includes matters related to shares in offerings, accounts, rights of franchise, etc. The Companies Act, 2013 provides the power to the National Company Law Tribunal (NCLT) to deal with matters related to company law. Since the power is given to the civil courts as well as the Tribunal, the jurisdiction is not very clear and depends from case to case.

REFERENCES

  • The Code of Civil Procedure, 1908, No. 5, Acts of Parliament, 1908 (India).
  • Avtar Singh, Company Law (Easten Book Company 2018).
  • The Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
  • C. K Takwani CIVIL PROCEDURE LIMITATION AND COMMERCIAL COURTS, 42 (Eastern Book Company 2020).

[1] The Code of Civil Procedure, 1908, § 9, No. 5, Acts of Parliament, 1908 (India).

[2] Shashi Prakash Khemka v NEPC Micon & Ors, (1999) 95 Comp Cas 583 (CLB).

[3] The Companies Act, 2013, § 241,242, No. 18, Acts of Parliament, 2013 (India).

[4] A Company, re, 1988 BCLC 182 (CLD).

[5] Mohan Lal Chandumall v Punjab Co Ltd, AIR 1961 Punj 485.

[6] Sanjivbhai Kirtibhai Patel v Biocare Remedies P. Ltd, (2017) 203 Comp Cas 5 (NCLAT).

[7] Solitaire Hotels (P) Ltd, re, (1992) 3 Comp LJ 119 (CLB).

[8] Avtar Singh, Company Law 510 (Easten Book Company 2018).

[9] Id at 430.

[10] Yogesh K Shah v Dilipbhai K Shah, 2013 SCC OnLine Guj 2901.

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