Full Text
HIGH COURT OF DELHI
2524/2017 SAS HOSPITALITY PVT LTD & ANR. ..... Plaintiffs
Through: Mr. Brij Bhushan Gupta, Senior Advocate with Mr. Amarjeet Singh and Mr. Uday Khanna, Advocates.
(M:9540954431)
Through: Ms. Anisha Mahajan, Advocate for D-1. (M:8860273364)
Mr. Dhruv Surana and Mr. Ashish Choudhury, Advocates for D-2 and 3.
(M:9836411111)
Mr. Jayant Mehta, Mr. N. Raja Singh and Mr. Sumit Malhotra, Advocates for D-4, 6 to 9. (M:9871128442)
JUDGMENT
1. The Plaintiff - SAS Hospitality Pvt. Ltd. (SAS) has filed the present suit seeking a declaration that the allotment of shares in favour of the Defendant Nos.[5] to 9 is null and void and a permanent injunction be passed from giving effect to the allotment dated 5th October, 2013. Reliefs prayed in the plaint are as under: Prathiba M. Singh, J. “a. Declaring that the allotment of shares, dated 05th October, 2013, in Defendant No.1 Company in favour of Defendant No.5-9 as set in Schedule I to the Plaint to be null, void and illegal; b. Issue a decree of Permanent Injunction restraining 2018:DHC:6778 the Defendant No.1 and Defendant No.2-4 from giving effect to ·allotment dated 05th October, 2013. c. Issue a decree of Permanent Injunction restraining the Defendant No. 5-9 to exercise any voting rights or whatsoever rights in Defendant No.1 Company in view of the illegal allotment of shares dated 05th October,
2013. d. Issue a decree of Permanent Injunction restraining the Defendant No.1 from selling, disposing or creating third party rights on the assets of the Defendant No.1, that is, the hotel property, J-14, Community Centre Rajouri Garden, New Delhi-110027. e. And/or pass any other order as your lordship may deem fit in the facts and circumstances of the case.”
2. SAS Hospitality Pvt. Ltd. is the Plaintiff No.1 in the present suit and Plaintiff No.2 Mr. Anant Kumar Aggarwal is the shareholder of the Plaintiff No.1. The Defendant No.1 – Surya Construction Pvt. Ltd. (Company) is a company, which owned a hotel property at J-14, Community Centre, Rajouri Garden, New Delhi-110027. The authorised share capital of the Company was 1 crore divided into 1 Lakh equity shares of Rs.100/- each. The actual issued share capital as on 31st March, 2013 was Rs.85,76,500/- comprising of 85,765 shares of Rs.100/- each. The Defendant Nos.[2] to 4 Mr. Samir Nawalgari, Mr. Sharad Nawalgari and Mr. Vaibhav Jhawar were managing the Company. The majority shareholder of the Defendant No.1 Company to the tune of 99.96% was the Plaintiff Company.
3. The suit was filed on the basis of the following allegations. a) That the Defendant Nos.[5] to 9 were allotted shares of the Company in an illegal and clandestine manner on 5th October, 2013. b) That the said allotment was made known by virtue of returns filed on 7th December, 2013 c) That the allotment of shares was done in an illegal and unlawful manner by transferring the moneys belonging to the Company and showing artificial deposit of Rs.1.[6] crores. In fact, the same amount of Rs.48 Lakhs belonging to the Company was rotated repeatedly to show that the Defendant Nos.[5] to 9 had paid the Company between 6th and 9th September, 2013, whereas in fact they had not made the said payments. d) That in a fraudulent manner the shareholding of the Plaintiff in the Company, which was to the tune of 99.96%, was diluted to 21.44%. e) That the share warrants, which were purportedly issued on 30th March, 2013, were illegal as the share capital did not permit issuance of share warrants. Moreover, share warrants could only be issued by a public limited company and not by a private limited company. f) That by circulating the same amount on four different occasions and showing that the Defendant Nos.[5] to 9 had subscribed to the share capital, allotment of share was made in their names, which is completely illegal.
4. The plaint also mentions that one of the directors approached the Company Law Board (‘CLB’) seeking redressal and vide order dated 24th October, 2013, a status quo order was passed by the CLB. Proceedings therein are stated still to be pending.
5. The Defendants have filed their written statement and raised a preliminary issue as to the maintainability of the present suit. It is stated that the Company was in severe financial crisis due to a loan taken by the Company from India Bulls Housing Finance Ltd. In fact, it is stated that the only property of the Company has already been attached under Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter, ‘SARFAESI Act’) and the same has, in fact, been sold. The purported sole asset of the Defendant No.1 Company is no longer an asset of the Plaintiff Company.
6. The Defendants, further, contend that in view of the notification and coming into effect of the National Company Law Tribunal (‘NCLT’), this Court has no jurisdiction to try and entertain the suit in view of the bar contained in Section 430 and Section 434(1)(c) of the Companies Act, 2013 (hereinafter, ‘2013 Act’). Applications under Order VII Rule 11 CPC have been filed seeking rejection of the plaint. The Plaintiffs have also filed an application under Order XXXIX Rules 1 & 2 CPC in which an ex-parte injunction order was granted in the following terms vide order dated 12th March, 2014.
9. I am satisfied that the plaintiff has made out a prima facie case for grant of an ex parte ad interim injunction and in case the ex parte ad interim injunction is not granted, the plaintiff shall suffer an irreparable loss and injury. The balance of convenience is also in favour of plaintiff. It is directed that till the next date of hearing defendants No. 5 to 9 shall not exercise any rights in respect of shares allotted to them on 5.10.2013. Further, defendants No.2 to 4 are restrained from disposing of any asset of the company or creating any third party interest in the assets of the company except in the ordinary course of business. In case any immovable asset is disposed of or any third party is created even in the ordinary course of business, the said defendants shall file such a statement before the court.
7. The Defendants have filed an application seeking vacation of the said injunction, as well. The Defendant Nos.[2] & 3 have also filed an application under Order 40 CPC being I.A. No.13437/2017 seeking appointment of receiver. Thus, the present order is being passed in all the pending applications.
8. On behalf of the Defendants, Mr. Jayant Mehta, Advocate seeks rejection of the plaint on the following grounds. a) Lack of jurisdiction of this Court in view of Section 59 of the Companies Act, 2013 read with Section 430 and Section 434 (1)(c) of the Companies Act, 2013. b) That the board resolution authorizing filing of the suit is defective as no board meeting was, in fact, conducted on 21st January, 2014 on which date Mr. Mohit Mittal, who has signed the plaint, had been purportedly authorised. Thus the suit is defective. c) That the matter, in any case, was before the CLB and has, now, been transferred to the NCLT. Thus, two different forums cannot adjudicate the same issue. He relies upon the judgment of the Supreme Court in Amonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. AIR 1998 SC 3153 (hereinafter, ‘Ammonia Supplies SC’). He also relies upon the judgment of this Court in Jai Kumar Arya v. Chhaya Devi (2018) 142 CLA 365 (hereinafter, ‘Jai Kumar Arya’) to argue that the interpretation given in this judgment supports his case. d) Mr. Mehta also relies upon Telecommunications Consultants India Ltd. v. TCIL Bellsouth Ltd. ILR (2006) II Delhi 780 (hereinafter, ‘Telecommunications Consultants India Ltd.’) to argue that the NCLT is the appropriate forum to adjudicate the present dispute.
9. On the other hand, Mr. B. B. Gupta, Counsel appearing for the Plaintiffs submit that this Court has jurisdiction to entertain the present suit as the present dispute is not one covered by Section 59 of the Companies Act, 2013 but in fact, one which is covered by Section 62 of the same, which deals with the issuance of further share capital. He also submits that this issue has now been decided by a learned Single Judge of this Court in Satish Chandra Sanwalka v. Tinplate Dealers Association Pvt. Ltd. & Ors. 189 (2012) DLT 785 (hereinafter, ‘Satish Chandra Sanwalka’) and the Division Bench judgment of this Court in Jai Kumar Arya (supra) which hold that the jurisdiction of the civil court under Section 9 CPC is not ousted. In fact, he relies upon the judgment of the Supreme Court in Amonia Supplies SC (supra) to argue that if the matter required rectification of the register of the Company under Section 155 of the Companies Act, 1956, it is to be adjudicated before the civil Court. He further submits that the argument of the Defendants that Mr. Mohit Mittal is not duly authorised by the board is untenable as he can produce the original board meeting minutes dated 21st January, 2014 to show that the board meeting, in fact, took place. Analysis & Findings
10. Before going into the question as to whether this Court has the jurisdiction to entertain and try the present suit and grant reliefs prayed for, it is necessary to analyze the scheme of the Companies Act, 2013, along with the constitution of the NCLT. The NCLT has been vested with powers that are far reaching in respect of management and administration of companies. The said powers of the NCLT include powers as broad as “regulation of conduct of affairs of the company” under Section 242(2)(a), as also various other specific powers. NCLT is a tribunal which has been constituted to have exclusive jurisdiction in the conduct of affairs of a company and its powers can be contrasted with that of the CLB under the unamended Companies Act, 1956.
11. In the 2013 Act, Sections 407 onwards deal with the constitution of the Tribunal. Section 420 has vested the Tribunal with powers to ‘pass such orders thereon as it thinks fit’. The Tribunal is also vested with the power of review. Under Section 424 of the Companies Act, 2013, the Tribunal also has the same powers and functions as are vested with a Civil Court. In addition to the above, the Tribunal also has the power to punish for contempt which was hitherto not available with the CLB. In various ways, the NCLT is not merely exercising the jurisdiction of a Company Court under the new Act, but is also vested with inherent powers and powers to punish for contempt. It is in this background that the court has to decide the issue of jurisdiction, which has been raised by the Defendant.
12. Under Section 62 of the 2013 Act, a procedure has been prescribed for issuance of share capital. The said procedure involves sending of a letter of offer to existing shareholders [Section 62(1)(a)] and to employees [Section 62(1)(b)]. The manner of sending of the said offer is also prescribed. The said offer also has to contain the details as to the terms under which the offer is being made, including the terms for conversion of debentures or loans to shares. Upon this procedure being followed, the subscribed share capital can be increased by the company.
13. The effect of the increase in the share capital and allotment of the same to any person has an automatic effect, i.e., it results in the alteration of the register of members under Section 59 of the 2013 Act. Thus, while the power to issue share capital vests in the company, the said power, without the section implementing the said issuance, is of no effect, and has no consequence. Any dispute in respect of rectification of the register of members under Section 59, can be raised by any person aggrieved to the Tribunal i.e., the NCLT.
14. Section 430 of the 2013 Act, which bars the jurisdiction of the Civil Court, has to be given effect to in this background, and reads as under: “Section 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.”
15. The bar contained in Section 430 of the 2013 Act is in respect of entertaining “any suit”, or “any proceedings” which the NCLT is “empowered to determine”. The NCLT in the present case would be empowered to determine that the allotment of shares in favour of the Defendant Nos.[5] to 9 was not done in accordance with the procedure prescribed under Section 62 of the 2013 Act. The NCLT is also empowered to determine as to whether rectification of the register is required to be carried out owing to such allotment, or cancellation of allotment ordered, if any. The NCLT can also determine if in the interregnum, the Defendant Nos.[5] to 9 ought to exercise any voting rights. The NCLT would be empowered to pass any such orders as it thinks fit, for the smooth conduct of the affairs of the company, which would include an injunction order protecting the assets of the Defendant No.1 Company. The NCLT would also be empowered to oversee and supervise the working of the company, and also appoint such persons as it may deem necessary to regulate the affairs of the company.
16. The allegations in the present case relate to non-compliance of the stipulations in Section 62 of the 2013 Act. The non-compliance of any conditions contained in Section 62 of the 2013 Act also constitutes mismanagement of the company, inasmuch as under Section 241 of the 2013 Act, the conduct of affairs of the company “in a manner prejudicial” to any member or “in a manner prejudicial to the interest of the company”, would be governed by the same. The jurisdiction to go into these allegations, vests with the Tribunal under Section 242 of the 2013 Act. Under Section 242(2), the NCLT has the power to pass “such order as it thinks fit”, including providing for “regulation of conduct of affairs of the company in future”. These powers are extremely broad and are more than what a Civil Court can do. Even if in the present case, the Court grants the reliefs sought for by the Plaintiff, after a full trial, the effective orders in respect of regulating the company, and administering the affairs of the company, cannot be passed in these proceedings. Such orders can only be passed by the NCLT, which has the exclusive jurisdiction to deal with the affairs of the company.
17. Moreover, the powers of the NCLT being broader and wider than what can be exercised by this Court in exercise of civil jurisdiction under Section 9 CPC. The NCLT is a specialised Tribunal constituted for the purpose of speedier and effective regulation of the affairs of the companies. As observed by the Supreme Court in Union of India v. R. Gandhi (2010) 11 SCC 1 (hereinafter, ‘R. Gandhi’) and thereafter, in Madras Bar Association v. Union of India (2015) 8 SCC 583 (hereinafter, ‘Madras Bar Association’) the NCLT has been created by a specific amendment in the law. The constitution of the NCLT has been upheld. The relevant observations in the said R. Gandhi (supra) is set out below:
18. In Madras Bar Association (supra), relying upon the decision in R. Gandhi (supra), the Supreme Court observed as under:
19. The bar under Section 430 of the 2013 Act being absolute in nature, this Court is of the view that the jurisdiction to adjudicate the disputes raised in the present case vests with the NCLT.
20. While deciding so, this Court is conscious of the difference between the terms “High Court” and “Civil Court”. Under the Companies Act prior to the amendments, references to the High Court mean the High Court exercising jurisdiction as a Company Court and not as a Civil Court. Section 434 of the 2013 Act, relating to transfer of the proceedings, is applicable in respect of the Company Court, and not this Court exercising ordinary original civil jurisdiction under Section 9 CPC. Thus, Section 434 of the 2013 Act would not have any application in the present case, and the authorities cited in respect of the said provision would also not be applicable. The NCLT having being vested with all the trappings of a Civil Court, with the amendments which have now been carried out, the bar under Section 430, however, is definitely triggered.
21. Coming back to the issue of Section 59 and Section 62, the judgment of the Supreme Court, relied upon by the Defendants in Ammonia Supplies SC (supra) is categorical. The Supreme Court observed as under:
interpreting such “court” having exclusive jurisdiction to include within it what is not covered under it, merely because it is cloaked under the nomenclature rectification does not mean the court cannot see the substance after removing the cloak. 28………29.......
30. All the above indicates the limitation and the peripheral jurisdiction with which court has to act. In spite of its exclusiveness, it cannot take within its lap outside this scope of rectification. This is indicated even by Section 155 itself: "Section 155: Power of Court to rectify Register of Members.- (1) If - (a) the name of any person -
(i) is without sufficient cause, entered in the Register of Members of a company, or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or (b) default is made, or unnecessary delay takes place, in entering on the Register the fact of any person having become, or ceased to be, a member; the person aggrieved, or any member of the company, or the company, may apply to the Court for rectification of the Register.
31. 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 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. Unless jurisdiction is expressly or implicitly barred under a statute, for violation or redress of any such right the civil court would have jurisdiction. There is nothing under the Companies Act expressly barring the jurisdiction of the civil court, but the jurisdiction of the 'court' as defined under the Act exercising its powers under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the civil court is impliedly barred. We have already held above the jurisdiction of the 'court' under Section 155, to the extent it has is exclusive, the jurisdiction of the civil court is impliedly barred. For what is not covered as aforesaid the civil court would have jurisdiction. Similarly we find even under Section 446(1), its words itself indicate the jurisdiction of the civil court is not excluded. This sub-section states, '...no suit or legal proceedings shall be commenced...or proceeded with...except by leave of the court'. The words 'except by leave of the court' itself indicate on leave being given the civil court would have jurisdiction to adjudicate one's right. Of course discretion to exercise such power is with the 'court'. Similarly under Section 446(2) 'court' is vested with powers to entertain or dispose of any suit or proceedings by or against the company. Once this discretion is exercised to have it decided by it, it by virtue of the language therein excludes the jurisdiction of the civil court. So we conclude that the principle of law as decided by the High Court that the jurisdiction of the court under Section 155 is summary in nature cannot be faulted. ”
22. The observations of the Supreme Court in the context of the earlier Act, above make it clear that if the jurisdiction of the Company Court was exclusive, the jurisdiction of the Civil Court was barred in respect of power to rectify the register of members. However, the Court therein was dealing with Section 446(1) of the Companies Act, 1956, in its earlier avatar. The provisions have undergone a sea change since then. In fact, in Section 446(1) of the Companies Act, 1956 itself the leave of the `Tribunal’ was to be taken after the Act was amended in 2013, i.e., the leave of the CLB had to be taken.
23. Learned counsel for the Plaintiff places strong reliance on the judgment of the Full Bench of this Court in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers (Pvt.) Ltd. & Ors. 52 (1993) DLT 252 (hereinafter, ‘Ammonia Supplies DHC’), to argue that this Court has jurisdiction. The reasoning in the said Full Bench judgment was that complex questions cannot be decided by the Tribunal, as the procedure in the Tribunal was of a summary nature. Moreover, the Tribunal was not enjoying the same powers as were exercised by the Civil Court at that time. Thus, disputed and complicated questions could not be raised before the Tribunal. This position no longer remains to be so, owing to the complete change in the scheme of the NCLT and the powers vested in it.
24. The Plaintiff has relied on a judgment of this Court in Satish Chandra Sanwalka (supra), which was also decided prior to the constitution of the NCLT in its present form. The constitution of the NCLT was subject matter of litigation before the Supreme Court of India, and the amended Act came into effect from 22nd August, 2013 and some of the provisions constituting the NCLT came into effect from 30th August, 2013 as corrected on 1st January, 2014. Moreover, the learned Single Judge had applied the ratio of Clausde-Lila Parulekar v. Sakal Papers (P) Ltd. & Ors. (2005) 11 SCC 73 (hereinafter, ‘Sakal Papers’) and Ammonia Supplies SC (supra), that disputed questions of fact ought to be decided by the Civil Court. Sakal Papers (supra) while dealing with Ammonia Supplies (supra) was decided in a fact situation where the matter had remained pending for 18 years before the Civil Court and the Supreme Court felt it to be grossly inequitable to relegate the parties to an alternate remedy after the lapse of such a long time.
25. In Jai Kumar Arya (supra), a Division Bench of this Court, dealing with the bar under Section 430 of the 2013 Act, held as under:
26. The bar under Section 430 of the 2013 Act has, therefore, to be strictly construed and there can be no doubt about that. The Division Bench also considered Dhulabai v. State of M.P. AIR 1969 SC 78 (hereinafter, ‘Dhulabai’), and held as under:
27. The Division Bench in Jai Kumar Arya (supra), after applying Dhulabai (supra), lays down the following test: