TMI Blog1995 (3) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... tt and Ms. Meenakshi Grover for the Appellant. J.C. Seth, Ms. Rachana Joshi Issar, F.S. Nariman, M.H. Baig , Ms. Ritu Bhalla, Ms. Monika Sharma and S.S. Shroff for the Respondent . JUDGMENT Bharucha, J. - Leave granted. 1. This is an appeal from the judgment and order of the Company Law Board 'CLB' which raises an interesting question as to the exclusive jurisdiction of the Special Court constituted under the provisions of the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. The CLB has held that its jurisdiction to deal with matters relating to securities provided by the Companies Act, 1956, is not affected by the Special Court Act* . The question arose in these circumstances. The Canara Bank (the appellant) had made an application before the CLB under section 111 of the Companies Act seeking relief against the Nuclear Power Corporation of India Ltd. (the first respondent), which had refused to register in its books in the name of the Canara Bank bonds of the Nuclear Power Corporation purchased by the Canara Bank. The Standard Chartered Bank (the fourth respondent) had also claimed ownership of the said bonds. The Canara Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that any contract or agreement entered into at any time between the stated dates in relation to any property of a person notified had been entered into fraudulently or to defeat the provisions of the Special Court Act, to cancel such contract or agreement and, on such cancellation, such property stood attached. Such cancellation was required to be preceded by a reasonable opportunity to the parties to the contract or agreement to be heard. Any person aggrieved by a notification under section 3(2) or section 4(1) was entitled to file a petition of objection before the Special Court. The Special Court was established by section 5. It was to consist of a sitting Judge of the High Court nominated by the Chief Justice of the High Court within the local limits of whose jurisdiction the Special Court was situated, with the concurrence of the Chief Justice of India. Section 6 empowered the Special Court to take cognizance of and try such cases as were instituted before it or transferred to it. Section 7 dealt with the jurisdiction of the Special Court and it reads thus : 7. Jurisdiction of Special Court. - Notwithstanding anything contained in any other law, any prosecution in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or before the 6th day of June, 1992, in which a person notified under sub-section (2) of section 3 is involved as a party, broker, intermediary or in any other manner; (2) Every suit, claim or other legal proceedings (other than on appeal) pending before any court immediately before the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, being a suit claim or proceeding, the cause of action whereon it is based is such that it would have been, if it had arisen after such commencement, within the jurisdiction of the Special Court under sub-section (1), shall stand transferred on such commencement to the Special Court and the Special Court may, on receipt of the records of such suit, claim or other legal proceeding, proceed to deal with it, so far as may be, in the same manner as a suit, claim or legal proceeding from the stage which was reached before such transfer or from any earlier stage of de novo as the Special Court may deem fit. (3) On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, no court other than the Special Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies) Act, 1992, a Special Court was set up at Bombay and a Custodian was appointed to deal with the situation arising out of the large scale irregularities and malpractices which were noticed in the securities transactions of banks, to ensure the speedy trial of the offenders, to recover the amounts involved and to attach the properties of the offenders with a view to prevent diversion of such properties by the persons responsible for these offences. 2. During the course of the trial of these cases, the jurisdiction of the Special Court, particularly in matters of civil claims, was being challenged for want of specific provisions in the Act. The Special Court, therefore, needed to be conferred with civil jurisdiction. For the said purpose, the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, was promulgated by the President on the 25th January, 1994.... Analysis of section 9A. 5. By reason of sub-section (1) of section 9A, on and from the date of commencement of the Amendment Ordinance the Special Court exer- cises all such jurisdiction, powers and authority as were exercisable by any civil court in relation to any matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Amendment Ordinance came into force, stand transferred to the Special Court. By reason of sub-section (3) of section 9A, on and after the commencement of the Amendment Ordinance, no Court other than the Special Court may exercise any jurisdiction, powers or authority in relation to any matter or claim referred to in sub-section (1), that is to say, in relation to any matter or claim, Inter alia, arising out of transactions in securities entered into between the stated dates in which a notified person is involved. 6. A 'Court' other than the Special Court is debarred, by reason of sub-section (3) of section 9A, from exercising any jurisdiction, powers or authority, after the commencement of the Amendment Ordinance, in relation to any matter or claim arising out of transactions in securities entered into between the stated dates in which a notified person is involved. Sub-section (2) of section 9A also speaks of a 'Court'; a proceed-ing before a Court, the cause of action of which arises out of a transaction in securities entered into between the stated dates in which a notified person is involved, stands transferred to the Special Court. The question, in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated dates in which a notified person is involved. It is, therefore, the proceeding in the Court of first instance that stands transferred. If the Court of first instance has finally disposed of the proceeding and its order thereon is the subject of an appeal, the appeal does not stand transferred. Section 111 of the Companies Act 8. Section 111 with effect from 31-5-1991, reads thus : Power to refuse registration and appeal against refusal. - (1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide in connection with the application for rectification. (8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture holders as they apply in relation to the rectification of the register of members. (9) If default is made in giving effect to the orders of the Company Law Board under this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to one thousand rupees, and with a further fine which may extend to one hundred rupees for every day after the first day after which the default continues. (10) Every appeal or application to the Company Law Board under sub-section (2) or sub-section (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed. (11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or interest of a member in, or debentures of, the company is transmitted by a sale thereof held by a Court or other public authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company : Provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made or unnecessary delay took place in entering on it the fact of any person having become, or ceased to be, a member. The Court was entitled to order rectification of the register and to direct the company to pay the damages, if any, sustained by a party aggrieved. The Court was entitled to decide any question relating to the title of any person who was a party to the application to have his name entered in or omitted from the register. An appeal from the order of the Court was provided for. 10. It will be seen that the CLB now exercises the powers that were exercisable by the Court under section 155. It is entitled to direct rectification of the register and the payment of damages by the company. It is entitled to decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register and to decide any question which it is necessary or expedient to decide in this connection. An appeal to the High Court against any decision or order of the CLB on a question of law is available to any person aggrieved, thereby under the provisions of section 10F. Whereas sub-sections (2) and (3) of section 111 term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Part VII (sections 425 to 560) and the other provisions of this Act relating to the winding up of companies. (3) For the purposes of jurisdiction to wind-up companies, the expression 'registered office' means the place which has longest been the registered office of the company during the six months immediately preceding the presentation of the petition for winding up. 12. The provisions of section 10E of the Companies Act, as they were amended with effect from 31-5-1991, read thus : Constitution of Board of Company Law Administration. - (1) As soon as may be after the commencement of the Companies (Amendment) Act, 1988, the Central Government shall, by notification in the Official Gazette, constitute a Board to be called the Board of Company Law Administration. (1A) The Company Law Board shall exercise and discharge such powers and functions as may be conferred on it, by or under this Act or any other law, and shall also exercise and discharge such other powers and functions of the Central Government under this Act or any other law as may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of this Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion it was not. Mr. Nariman drew attention to the provisions of section 13 of the Special Court Act, which stated that the provisions of the Special Court Act would have effect notwithstanding anything con- tained, Inter alia, in any decree or order of any Court, Tribunal or other authority , and emphasised the distinction made by Parliament between Court, Tribunal and other authority. The CLB was not intended to be covered by the provisions of section 9A(1), for those provisions did not exclude the jurisdiction of a Tribunal or authority but only of a Court. Secondly, the jurisdiction of the Special Court was in regard to matters arising out of transactions in securities entered into between the stated dates in which a person notified was involved as a broker, intermediary or in any other manner. It would be very difficult for an intending litigant to know whether a person notified had been involved in a transaction relating to securities which he had purchased and which were not being registered in his name, as a broker or intermediary or in any other manner at any time between the stated dates. It was, therefore, inappro-priate to hold that such a litigant was bound to take r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transferees raised the objection that the Central Government, exercising powers under section 111, was not a Tribunal exercising judicial functions and was, therefore, not subject to the appellate jurisdiction of the Supreme Court under article 136. J.C. Shah, J. spoke for four of this brethren and held that a person aggrieved by the refusal to register the transfer of shares had two remedies under the Companies Act, namely, to apply to the Court for rectification of the register under section 155 or to appeal against the resolution refusing to register the transfer under section 111. It was common ground that in the exercise of power under section 155, the Court had to act judicially; to adjudicate upon the right exercised by the directors in the light of the powers conferred upon them by the articles of association. The transfer- ees, however, submitted, and were supported by the Union of India, that the authority of the Central Government under section 111 was, nevertheless, purely administrative. In an appeal under section 111 there was a lis or dispute between the contesting parties relating to their civil rights, and the Central Government was invested with the power to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and to punish wrongs. Whenever there was an infringement of a right or an injury, the Courts were there to restore the 'vinculum juris'. When rights were infringed or invaded, the aggrieved party could go and commence a 'querela' before the ordinary civil courts. These courts were invested with the judicial power of the State and their authority was derived from the Constitution or some Act of Legislature constituting them. Their number was ordinarily fixed and they were ordinarily permanent and could try any suit or cause within their jurisdiction. Their numbers might be increased or decreased but they were almost always permanent and went under the compendious name of Courts of Civil Judicature . There could be no doubt that the Central Government did not come within this class. With the growth of civilisation and the problems of modern life, a large number of administrative Tribunals had come into existence. These Tribunals had the authority of law to pronounce upon valuable rights. They acted in a judicial manner and even on evidence on oath, but they were not part of the ordinary courts of civil judicature. They shared the exercise of the judicial power of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or persons, whether by name or by office, for the purpose or hearing an appeal under section 111. It would then have been clear that though such person or persons were not 'Courts' in the sense explained, they were clearly 'Tribunals'. The Companies Act said that an appeal would lie to the Central Government. The Court was, therefore, faced with the question whether the Central Government could be said to be a Tribunal. The function that the Central Government performed under the Companies Act and Rules was to hear an appeal against the action of the directors. For that purpose a memorandum of appeal setting out the grounds had to be filed and the company, on notice, was required to make representations, if any, and so also the other side, and both sides were allowed to tender evidence to support their representations. The Central Government by its order then directed that the shares be registered or need not be registered. The Central Government was also empowered to include in its orders directions as to payment of costs or otherwise. The function of the Central Government was curial and not executive. There was provision for a hearing and a decision on evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 111 for so holding. Hidayatullah, J., concurring, held that all Tribunals were not Courts though all Courts were Tribunals. The word 'Courts' was used to designate the Tribunals that a State established to administer justice. They were fixed and permanent and could try any suit or cause within their jurisdiction. They went under the compendious name of 'Courts of Civil Judicature'. A large number of administrative Tribunals had come into existence with the growth of civilisation and the problems of modern life. They acted in a judicial manner but they were not part of the ordinary courts of Civil Judicature. What distinguished them had never been successfully established. When the Constitution spoke of 'Courts' in article 136 and other articles, it contemplated courts of civil judicature but not Tribunals other than such Courts. This was the reason both expressions were used in articles 136 and 226. The judgment is, therefore, determinative in deciding whether a Tribunal is subject to the jurisdiction of this Court under article 136 or of the High Court under article 227, but it does not hold that a 'Court' is only a court of ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lems has been tested and found wanting. The consequence of these irregularities in securities and banking transactions are both financial and moral. During the period from July 1991 to May 1992 the most glaring proof of the nexus between the irregularities in banks and the overheating of stock market which came to light is explained by the graphic representations of the BSE Index and the fact that there was a sharp increase in securities transactions during the corresponding period of the banks involved in serious irregularities related with the scam. What is more apparent is the systematic and deliberate abuse of the system by certain unscrupulous elements. It is abundantly clear that the scam was the result of failure to check irregularities in the banking system and also liberalisation without adequate sefeguards. There is also some evidence of collusion of big industrial houses playing an important role. It is because of these elements that the economy of the country had to suffer and while some gained thousands of crores, millions of investors lost their savings. The criminality of the perpetrators of the scam becomes all the more depictable as it was during this period that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely by reason of voluntary submission to their jurisdiction. Thus, arbitrators, committees of clubs and the like, although they may be Tribunals exercising judicial functions, are not courts in this sense of that term. On the other hand, a Tribunal may be a court in the strict sense of the term even though the chief part of its duties is not judicial. Parliament is a court. Its duties are mainly deliberative and legislative; the judicial duties are only part of its functions. A coroner's court is a true court although its essential function is investigation. 702. What is a court in law. - The question is whether the Tribunal is a court not whether it is a court of justice, for there are courts which are not courts of justice. In determining whether a Tribunal is a judicial body the facts that it has been appointed by a non-judicial authority, that it has no power to administer an oath, that the chairman has a casting vote and that third parties have power to intervene are immaterial, especially if the statute setting it up prescribes a penalty for making false statements; elements to be considered are (1) the requirement for a public hearing, subject to a power to excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same manner as a Court of law is expected to do . 23. Now, under section 111 of the Companies Act as amended with effect from 31-5-1991, the CLB performs the functions that were theretofore performed by courts of civil judicature under section 155. It is empowered to make orders directing rectification of the company's register, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the company's register; and any question which it is necessary or expedient to decide it may make interim orders. Failure to comply with any order visits the company with a fine. In regard to all these matters it has exclusive jurisdiction (except under the provisions of the Special Court Act, which is the issue before us). In exercising its function under section 111 the CLB must, and does, act judicially. Its orders are appealable. The CLB, further, is a permanent body constituted under a statute. It is difficult to see how it can be said to be anything other than a Court, particularly for the purposes of section 9A of the Special Court Act. 24. We shall assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Special Court with jurisdiction to entertain matters or claims arising out of transactions in securities entered into between the stated dates in which a person notified is involved not only as a party but also as a broker, intermediary or in any other manner. The argument based on section 4 must, therefore, fail. 26. As has been pointed out, sub-sections (2) and (3) of section 111 of the Companies Act term the pleading that the person aggrieved has to file before the CLB an 'appeal', sub-section (4) requires the person aggrieved to apply, sub-section (5) speaks of it as an 'appeal' or an 'application', sub-section (7) as an 'application' and sub-section (10) as an 'appeal or application' which shall be made by a 'petition in writing'. The words 'appeal' and 'application' in the context of the provisions of section 111 have, therefore, the same meaning and it is, plainly, an original applica- tion that is made. The shareholder does not resort to a superior court to review the decision of an inferior court or Tribunal. The fact, therefore, that section 9A(2) of the Special Court Act speaks of the transfer of ' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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