TMI Blog2014 (7) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... y Lrs. and Another Vs. Ramesh Chandra Agarwala and Others [ 2003 (7) TMI 481 - SUPREME COURT ], the Honble Supreme Court while considering the question of jurisdiction for the civil court in a dispute in-between Directors of a company in a suit for eviction and permanent injunction, alleging illegal dispossession from a printing press, referring to the provisions contained in Sections 9 and 10 of the Companies Act, it was held that the above provisions do not oust the jurisdiction of the civil court. The exclusion of the jurisdiction of the civil courts to entertain a civil cause cannot be assumed unless a particular statute contains an express provision to that effect or leads to a necessary and inevitable implication of that nature. Merely because the Companies Act provides for certain remedies it cannot be said that the jurisdiction of civil courts to deal with a case brought before it in respect of some of the matters covered by the Act is barred - the prerequisites to approach the Company Law Board and for grant of an effective remedy under the Companies Act are not available in the present case. The appellant is seeking a relief against all the remaining Directors of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 1st defendant in respect of the plaint schedule property in favour of the 9th defendant without any authority and without complying the procedural formalities. Alleging that the said sale deed is a sham document, that no consideration has been received from the 9th defendant and he is only a name lender and the sale deed was executed with the intention of transferring the plaint schedule property to somebody else for higher consideration, the plaintiff approached the Sub Court, Kollam, praying for a declaration that such sale deed is void and not binding on the company. During the pendency of the suit, the 2nd defendant executed another sale deed No. 1237/02 dated 26.03.2002 in favour of the 10th defendant, in collusion with defendants 3 to 8. That was also challenged, by way of amendment. 2. The defendants filed a written statement raising a preliminary objection that the suit is not maintainable in view of Sections 397 and 398 of the Companies Act. 3. On consideration of the preliminary issue, the court below found that the remedy available to a share holder of a company, when the affairs of the company are managed in a manner oppressive and if there is mismanagement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court will not be effective at least as against the strangers to the company. In this context, an examination of the provisions contained in Section 397 is necessary. The relevant provisions (as it stood before amendment of Act 11/2003, read as follows: 397. Application to Company Law Board for relief in cases of oppression:--(1) Any member of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Court is of opinion-- (a) that the companys affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Company Law Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder under either section may provide for-- xxx xxx xxx xxx xxxxx xxx xxxx xxx xxxx xxx xxx xxx xxx xxxxx xxx xxxx xxx xxxx (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. The above provision provides that the Company Law Board can issue orders which may provide for setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done against the company within 3 months before the date of application under Sections 397 and 398. Sections 397 and 398 provide for the remedies when the Companys affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members. The relief under Section 402(f) is provided for only in respect of the transactions which took place within a period of 3 months, that too, when affairs of the company are being conducted in a manner oppressive or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first and most well-recognised exception to the rule in Foss v. Harbottle. xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxxxx Further in para. 9, the observations in the judgment in C.P. 1/79 were also reiterated in support of the conclusion. The relevant portion in paragraph read as follows: Apart from corporate rights which are but rights to get remedied wrongs done to a company, a member has also personal rights to sue for wrongs done to himself in his capacity as a member. Those individual rights stem partly from contract, express or implied, and partly from the general law. A contract is implied between a company and a member who joins it. And this gives him the right to have his name properly entered in the register of members with all correct particulars, to vote at meetings of members, to receive dividends and to have his capital returned to him in whole or in part, in the event of winding up; and he can therefore sue for enforcing these rights. Under the general law, he has an individual right to restrain the company from doing ultra vires acts, to have a reasonable opportunity of attending and speaking at meetings, to move amendments at such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the civil courts. In Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, , a five-judge Bench of the Supreme Court considered the earlier decisions on this aspect and laid down the following propositions: (1) Where the statute gives finality to the orders of the special tribunals, the civil courts jurisdiction must be held to be excluded, if there is adequate remedy to do what the civil courts would normally do in a suit. Such a provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure. (2) Where there is an express bar of jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion, the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it is necessary if the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply under sections 397 and 398. But, as noticed above, the scope of an application under Sections 397 and 398 is limited. It is intended to prevent only continuing wrongs and does not enable the shareholders to challenge concluded transactions. Moreover, the provisions, as already noticed, are essentially intended against the tyranny of the majority against the minority shareholders. But, in this case, the complaint is that the managing director and some of the directors of the company who do not have the backing of the majority, have conducted themselves in such a manner to tilt the scales and create a majority for themselves. Some of the allegations may amount to mismanagement also within the meaning of section 398 giving jurisdiction to the Company Law Board to give appropriate reliefs under section 397, 398 or 402 of the Act, but there too it is restricted to bringing to an end or preventing the matters complained of or apprehended. xxxx xxx xxxx xxxxx xxx xxx xxxx xxxx xxxx xxxx xxxx xxx xxxx xxxxx xxx xxx xxxx xxxx xxxx xxxx xxx xxxx xxx xxxx xxxxx xxx xxx xxxx xxxx xxxx xxxx xxx xxxxxxx xxx xxxx xxxxx xxx xxx xxxx xxxx xxxx xxxx The remedies sought for by way of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct exclude the jurisdiction of the ordinary courts. 7. In the present case, appellants allegation is that the 2nd respondent Managing Director, executed sale deeds, which are sham documents without consideration, in respect of the property of the Company, in collusion with other Directors, in the absence of any special resolution for the same. The relief sought for in the suit is a declaration that the sale deeds executed by the Managing Director on 29.06.2001 and 23.06.2002 are null and void and not binding upon the Company. Going by the nature of the relief sought in the suit, it cannot be said that the complaint of the appellant was in respect of a continuing wrong or that the Company Court will be able to grant an effective relief sought for, by her as against the third parties, that too in respect of past transactions. It can be seen that there is no specific exclusion to seek remedies from a civil court. At the most it can be said that remedies are available under the Companies Act as well as under General Law of Contract from the civil court and there is an element of election for the party to approach appropriate forum, considering the nature of the relief he is seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant is therefore free to choose the forum which is capable of granting her effective relief. 9. The next case relied on is the decision reported in Raja Ram Kumar Bhargava (Dead) by Lrs. Vs. Union of India (UOI), wherein also the question of jurisdiction of the civil court was considered in a case where payment of interest was sought on refund of taxes and objection has been raised by the department of Income Tax in the light of Section 297 of the Income Tax Act. Even though it was ultimately found that the matter was governed under Section 297(2)(i) and the assessee was not entitled to interest, the court considered the question of jurisdiction of the civil court in para. 9 of the judgment and held as follows: xxxx xxxx xxxx xxxx xxxx xxxxx xxxxx xxxx xxx xxxx xxxx xxx xxxx xxxxx xxxx xxx xxxx xxx xxxx xxxx xxxx xxxx xxx xxxx xxx xxxx Generally speaking, the broad guiding considerations are that wherever a right, not preexisting in common-law, is created by a statute and that statute itself provided a machinery for the enforcement of the right, both the right and the remedy having been created uno flatu and a finality is intended to the result of the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this matter a statute is enacted which statute provides a machinery for working out the remedy if the right is infringed, still such person will be entitled to resort to a civil court to seek his remedies in regard to the infringement of his rights unless the statute excludes such resort to the civil court and confines his remedies to that provided by the statute. This is because even de hors the statute such a person had a civil right and unless the provisions of the statute are to be so read as excluding resort to the civil court for vindicating such civil right ouster of jurisdiction of civil courts cannot be assumed. But this rule does not hold good where the statute creates rights for the first time. In such cases it is the machinery prescribed by the statute which creates such rights that will be available to the person. In such a case unless right is conferred on the civil courts it will not be open to a person to resort to such civil remedies. xxx xxx xxx xxx xxx xxx. 11. In the decision reported in Antony v. T. Plantations (Pvt.) Ltd. [1995(2) KLT 512 (F.B.)], the Full Bench was considering the issue as to the maintainability of a petition under Section 155 of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or authorities constituted under the Companies Act are empowered to grant the relief sought for. The provisions contained in Section 397 and 398 do not stand in the way of the civil court granting a declaratory relief as to the validity of the sale deeds executed in favour of 3rd parties, the first of which was executed in June, 2001, i.e. beyond 3 months of filing the suit. The winding up proceedings envisaged under the Companies Act will not by itself be an effective remedy in the circumstances of the case, especially when the impugned action is already done and is not being done. Therefore the prerequisites to approach the Company Law Board and for grant of an effective remedy under the Companies Act are not available in the present case. The appellant is seeking a relief against all the remaining Directors of the company against a past transaction, which does not amount to a continuing wrong. Therefore, an effective remedy is available to her only before the civil court, for which there is no specific ouster in the Companies Act. Moreover when the appellant can invoke her statutory rights under the Company Law as well as the rights under the common law, she has got every freedo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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