2020 (1) TMI 1375 - HC - Indian Laws

Suit for permanent prohibitory injunction - seeking permanent injunction on the second defendant from convening holding and conducting annual general meeting of the first defendant proposed to be held on 15.02.2019 or any other annual general meeting for moving the amendments proposed in the notice produced along with the plaint - whether section 3 of the Non Trading Act is an instance of legislation by incorporation as claimed by the plaintiffs or was a legislation by reference as contended by the defendants? HELD THAT - Section 3 provides that the Companies Act 1956 in so far as it was the law relating to companies other than trading corporations with objects not confined to one State shall mutatis mutandis and subject to the modifications specified in the Schedule to this Act be applicable to the State of Kerala and shall be the law relating to companies other than trading corporations with objects confined to the State of Kerala. The Schedule suggests modification to terms like Central Government Government Parliament Comptroller and Auditor- General Supreme Court with corresponding words which are required to make a Central Statute applicable to a State. The effect of section 3 is that the provisions of the Companies Act 1956 with certain limited modifications to the words mentioned in the Schedule of the Act are made completely applicable to the Non Trading Act. It is pertinent to note that no specific provision of the Companies Act is sought to be incorporated in the Non Trading Act. In fact entire provision of the Companies Act 1956 to the extent applicable are made applicable by a single reference. None of the provision of the Companies Act is lifted and incorporated in the Non- trading Act. There is nothing in the Non-trading Act to indicate that any single provision in the Companies Act was introduced in the incorporating Statute and made part of it. Further there is nothing in the Act to show that it was an instance of legislation by incorporation. In the Non Trading Companies Act there is absolutely no provision relating to the incorporation or winding up of the companies other than the non trading corporation. For the detailed provisions one has to search for the Companies Act. Even the charging section which is section 3 of the Non Trading Act does not lay down any specific provision except referring to the Statute that would apply. Section 4 provides that every existing company with its registered office in any place in the State of Kerala shall be deemed to be registered under the Companies Act 1956 as applied to the State of Kerala by section 3 and shall be governed by the said Act accordingly. Perusal of the Non Trading Act shows that regarding incorporation regulation and winding up of companies specific provisions are not available in the Non Trading Act. One has to refer to the Companies Act for that purpose. In other words it cannot be said that any specific provision of the Companies Act has been bodily lifted and incorporated in the Non Trading Companies Act or that after incorporation the former Act has lost its applicability in so far it relates to the provisions covered by the Non Trading Act. Unlike the provisions of legislation by C.R.P.248/19 incorporation one has to refer to the Companies Act. Necessarily Companies Act has not been incorporated into the Non Trading Act by legislation and can only be stated to be an instance of legislation by reference. This leads to the conclusion that any amendment made to the Companies Act thereafter will be extended to Non Trading Companies Act and will operate and apply to such companies. Thus the suit is not maintainable in relation to matters that are governed by the Companies Act. Consequently it has to be held that the suit as framed was not sustainable and to that extent contention of the defendants has to be upheld. The conclusion of the lower appellate court has to be sustained - revision dismissed.

Summary

Issues Involved:
1. Maintainability of the suit in light of the Companies Act, 2013.
2. Applicability of arbitration clause under Rule 71 of the bye-law.
3. Application of the Kerala Non Trading Companies Act, 1961.

Issue-wise Detailed Analysis:

1. Maintainability of the Suit in Light of the Companies Act, 2013:
The primary issue was whether the civil court had jurisdiction to entertain the suit filed by the plaintiffs. The defendants argued that under Section 430 of the Companies Act, 2013, no civil court has jurisdiction over matters that the Tribunal or Appellate Tribunal is empowered to determine. The lower appellate court upheld this view, stating that the Companies Act provides an alternate forum for adjudication, thus making the suit non-maintainable in a civil court. The court concluded that the suit as framed was not sustainable and directed the trial court to return the plaint to the plaintiffs for presenting it before the proper authority.

2. Applicability of Arbitration Clause Under Rule 71 of the Bye-law:
The defendants contended that the plaintiffs did not invoke the arbitration clause provided under Rule 71 of the bye-law. The plaintiffs countered this by citing the decision in Sathyan v. Yogam and others (2019(1) KLT 76), which stated there was no arbitration clause. The lower appellate court agreed with the plaintiffs, aligning with the decision in Sathyan v. Yogam and others, thus rejecting the defendants' contention regarding the arbitration clause.

3. Application of the Kerala Non Trading Companies Act, 1961:
The plaintiffs argued that the Yogam was governed by the Kerala Non Trading Companies Act, 1961, and not the Companies Act, 2013. However, the court noted that Section 3 of the Non Trading Act made the Companies Act, 1956 applicable mutatis mutandis to non-trading companies in Kerala, subject to certain modifications. The court examined whether Section 3 of the Non Trading Act was an instance of legislation by incorporation or by reference. It concluded that it was legislation by reference, meaning that amendments to the Companies Act would apply to the Non Trading Companies Act. Therefore, the suit was not maintainable under the Companies Act, 2013.

Conclusion:
The court upheld the lower appellate court's decision that the suit was not maintainable in a civil court due to the applicability of the Companies Act, 2013, and directed the trial court to return the plaint to the plaintiffs for presenting it before the proper authority. The revision petition was dismissed, confirming the lower appellate court's conclusion.