This article has been written by Amarpal Singh, pursuing the Certificate Course in National Company Law Tribunal (NCLT) Litigation from LawSikho.
Table of Contents
Introduction
The High Courts (which are now civil courts for the purpose of the Companies Act, 2013) were vested with original jurisdiction to adjudicate upon certain company matters under the Companies Act, 1956. The jurisdiction which was divided between the Company Law Board and High Court was transferred to National Company Law Tribunal (NCLT) in the Companies Act, 2013. However, even after the Companies Act, 2013 (hereinafter referred to as “Act”), suits were filed before High Courts to adjudicate on Company matters.
Due to this scenario, there was a dispute between civil courts and NCLT in terms of jurisdiction of company matters. This article describes the conundrum between civil courts and NCLT. It also categorically provides an answer to the question “whether the NCLT has exclusive jurisdiction for all the company matters?” by analyzing the various judicial decisions.
Background of NCLT
NCLT is a quasi-judicial body that was established under Section 408 of the Act with effect from 1st June 2016. It was set up on the recommendation of Justice Eradi Committee Report on the law relating to insolvency and winding up of companies. The NCLT was initially introduced in the Companies Act, 1956 by the Second Amendment Act, 2002 but was never notified as it got stuck in litigation concerning the constitutionality of the NCLT. The Act contained the provisions relating to the NCLT, however, the constitutionality of NCLT was again challenged in the case of Madras Bar Association v. Union of India where the Supreme Court upheld the constitutional validity of NCLT.
J.J. Irani Committee Report on Company Law, 2005Â
In the JJ Irani Committee Report, it was recommended that institutional structural changes need to have a quick corporate resolution. In the report, it was particularly pointed out that the time which was spent in the existing framework, that was followed before the formation of NCLT, needs to be reviewed specifically in the context of rehabilitation, liquidation and winding up. The committee welcomed the Companies (Second Amendment) Act, 2002 which provided for setting up of NCLT and National Company Appellate Law Tribunal (NCLAT), each singular forum to adjudicate matters dealing with corporate issues and appeals.
Conundrum between NCLT and civil courts
In the case of MAIF Investment Private Limited v. Ind-Bharat Power Infra Limited & Ors., NCLAT reviewed and adjudicated on the issue- ‘Whether NCLT has exclusive jurisdiction for all the company matters and to bar the jurisdiction of civil courts?‘Â
The NCLT (Ahmedabad Bench) had refused to entertain a petition under Section 59 of the Act for rectification in the register of members of the company. The dispute, in this case, was regarding the conversion of compulsorily convertible debentures without consent and quorum. The NCLT (Ahmedabad Bench) while dismissing the petition stated that the issues which are raised before the tribunal are complex as they require examination of Arbitration and Conciliation Act, 1986 and Insolvency and Bankruptcy, Code 2016. The NCLT (Ahmedabad Bench) relied on the judgement given by the Supreme Court of India in the case of M/S Ammonia .v. M/S Modern Plastic Pvt. Ltd. & Ors., in which it was held that, if the petition of rectification of register of member raises some serious question then the matter has to be adjudicated by the civil court.
The NCLAT, after reviewing the appeal, held that there are no complex issues involved in the petition filed under Section 59 of the Act. Even if there are complex issues, they have to be decided by the NCLT. It was further held that after the Act came into existence, the old law was not good as Section 430 of the Act bars the jurisdiction of civil courts. The matters under Section 59 of the Act or any section of the Act has to be adjudicated by the NCLT.
Judicial DecisionsÂ
Viji Joseph v. P.ChanderÂ
In this case, the issue before the Madras High Court was whether the dispute relating to the election of the board of directors which was conducted through electronic means under Section 20 of the (Management and Administration Rules, 2014) will be within the jurisdiction of NCLT or not. It was held that NCLT has exclusive power to deal with the issue raised in the suit and jurisdiction of the civil court is completely barred.
SAS Hospitality Pvt Ltd v. Surya Construction LtdÂ
In this case, the plaintiff had filed a suit before the Delhi High Court. The suit was filed for seeking a declaration that the allotment of shares done by the company is null and void as the company did not comply with the procedure under Section 62 of the Act, for further issue of shares.Â
After the allotment of shares, the plaintiff’s shareholding from 99.96% was diluted to 21.44%. This case was also pending before the Company Law Board (CLB) from where the plaintiff had obtained the order of status quo. An order for an injunction was also obtained by the plaintiff from the civil court. The defendants challenged the maintainability of the petition as the jurisdiction of the civil court is barred by Section 430 of the Act. The Delhi High Court held that remedy for non-compliance of Section 62 can be found under the two provision of the Act:
- Section 52: under this Section, an application can be made to the NCLT for rectification in the register of the member.
- Section 242: according to this Section, the tribunal has the power to regulate the affairs of the company if the affairs are being conducted in a manner that is prejudicial to the interest of the company.Â
Further, it was held that both of the sections grant exclusive jurisdiction to NCLT. The powers given to NCLT are greater than powers granted to a civil court and have far-reaching consequences. Thus, NCLT has exclusive jurisdiction to adjudicate for all the company matters.Â
Jaiveer Singh Virk v. Sir Sobha Singh Pvt. Ltd. & Ors
In this case, the plaintiff approached the Delhi High Court as he did not have the qualification shares to approach the NCLT to file a petition for oppression and mismanagement in the context of allotment of flats by the company. The petition for oppression and mismanagement had already been filed by the father of the plaintiff and certain others on the same facts in the NCLT. The Delhi High Court, in this case, held that it would be a travesty of the statute if it is held that a person who is not entitled to file a petition as he does not hold qualification shares can approach the Civil Court to interfere in the management of the company.
Chiranjeevi Ratham v. Ramesh & Ors
This case was filed by the plaintiff in the Madras High Court, to declare the appointment of some directors in the Private Limited Company as illegal and to seek a permanent injunction restraining them to act as the directors of the company and an injunction was also sought to restrain the company from conducting an Extraordinary General Meeting. The Court in this case held that jurisdiction of the civil court is barred by Section 430 of the Act. The NCLT alone is entitled to adjudicate upon matters of oppression and mismanagement.
Jai Kumar Arya & Ors. v. Chhaya Devi & AnrÂ
In this case, the Delhi High Court’ Division Bench, while dealing with Section 430 of the Act which bars the jurisdiction of civil courts, held that: “While examining the merits of the rival contentions that, the court is fully aware of the interpretive principle that the provision which bars the jurisdiction of the civil courts has to be construed strictly and should not be easily inferred which is now trite in law”.
Shashi Prakash Khemeka v. NEPC Micon & OrsÂ
In this case, the Supreme Court of India had the opportunity to determine whether the NCLT or the civil court would have jurisdiction over a dispute about the transfer of shares. The Supreme Court held that the jurisdiction of civil courts is completely barred as the dispute had arisen after the commencement of the Companies Act, 2013, the power to provide remedy will be vested in the NCLT.
AnalysisÂ
Section 9 of the Code of Civil Procedure, 1908 states that the “civil courts have the jurisdiction to try all suits of a civil nature excepting suits of which cognizance is expressly and impliedly barred”.
A suit is expressly barred when it is barred by any enactment which is for the time being in force. In the case of State of Vindhya Pradesh .v. Moradhwaj Singh, it was held that the competent legislature can bar the jurisdiction of civil courts with respect to a particular class of suits which are civil of civil nature, provided that the legislature in doing so, keeps itself within the field of the legislation which is conferred to it and does not in any way contravene the Constitution.
Section 430 of the Act, expressly bars the jurisdiction of the civil courts with respect to any matter which the NCLT or the NCLAT is empowered to determine under the Act or any law for the time being in force. The Section also states that no injunction shall be granted by any court or authority concerning any action which is taken or to is taken by the NCLT or NCLAT in pursuance to the power granted under the Act and any law for the time being in force.
ConclusionÂ
It can be concluded from the above analysis and various judicial pronouncements that the jurisdiction of the civil courts is completely barred and the NCLT has exclusive jurisdiction for all the company matters.
ReferencesÂ
- Prithviraj Senthil Natan, Civil Court .vs NCLT: The Debate Continues, Mondaq (Jan. 11, 2021, 01:53 AM) : https://www.mondaq.com/india/shareholders/839106/civil-court-vs-nclt-in-adjudicating-the-company-law-matters-the-debate-continues.
- Prachi Manekar Walzwar, NCLT – Powers and Functions under Cos Act, 2013 LawStreetIndia (Jan 12, 2021, 01:45 AM) http://www.lawstreetindia.com/experts/column?sid=164.
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