Del HC | Will the jurisdiction to address issues of oppression and mismanagement, elections to board of directors of company, etc., vest exclusively with NCLT? HC considers

Delhi High Court: Najmi Waziri, J., while addressing the present matter considered the following issues:

Whether elections to the Board of Directors of a company; allegations of oppression and mismanagement; wrongful appointment of an Ombudsman in violation of Articles of Association could be adjudicated by a civil court

OR

Whether jurisdiction vests exclusively with the National Company Law Tribunal?

Background

Appeal under Sections 104 and 151 read with Order XLIII Rule 1 CPC, impugns an order of the ADJ, Tis Hazari Courts, New Delhi whereby the appellant’s two applications were dismissed and the interim injunction sought by the plaintiff was granted.

Contention of the appellant

Appellant submits that the suit is not maintainable before a Civil Court because of the bar placed on Civil Courts by Section 430 of the Companies Act, 2013.

Section 430 of the Companies Act, 2013

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.” The effect of the aforesaid provision is that in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred.

Appellant also relied on the decision of this Court in SAS Hospitality Pvt. Ltd. v. Surya Constructions Pvt. Ltd., 2018 SCC Online Del 11909, wherein it was observed that,

“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”.”

Appellant also relied on the decision of Madras High Court in Viji Joseph v. P. Chander, 2019 SCC OnLine Mad 10424 wherein the Court examined an election dispute under Section 20 of the Companies (Management and Administration) Rules, 2014, involving the maintainability of the election of the Board of Directors through electronic means.

After analyzing Section 242 and other circumstances pertaining to the case, Madras High Court concluded that only the Tribunal had powers to deal with the issue raised in the suit and the civil court had no jurisdiction to entertain the suit.

Issues raised in the present matter

Challenging matters relating to the AGM, the Board of Directors of the appellant company, the appointment of an ombudsman and other related issues.

The Madras High Court Decision as referred above has also discussed the expanse of Section 430 of the Companies Act, 2013.

Senior Advocate for the appellant submits that the Companies Act and the National Company Law Tribunal Rules, 2016, are together a complete code. Ample power has been provided to the NCLT – akin to a civil court – to deal with all issues for which powers have been conferred upon the Tribunal.

Further, the appellant submitted that, in the present case, the process of election to the Board of Directors/Members of the Apex Council, has been challenged because of it being allegedly contrary to the procedure laid down in the AoA and the notice calling for the AGM, and that the elections were held on the basis of a voice vote instead of paper ballot, contrary to what was mentioned in the AGM notice.

Hence, the High Court on perusal of the above stated that Sections 241, 242 and 244 of the Companies Act deal with the issues raised in the present suit.

NCLT has been specifically conferred powers to address grievances relating to the affairs of the company, which may be prejudicial or oppressive to any member of the company, or for issues of appointment of directors.

The appointment of an Ombudsman, would also form a part of the conduct and management of the affairs of the company.

Supreme Court in its’ decision in Shashi Prakash Khemka v. NEPC Micon, 2019 SCC Online SC 223 discussed the scope of Section 430 and stated the same to be vast and the jurisdiction of the civil court to be completely barred when the power to adjudicate vests in the Tribunal.

Therefore, the lis and grievances raised in the present suit can be agitated only before the NCLT as the civil court would have no jurisdiction.

The appeal was allowed. [Delhi & District Cricket Association v. Sudhir Kumar Aggarwal,  2020 SCC OnLine Del 1223, decided on 21-09-2020]

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