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TMI Blog2024 (9) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 2013 for committing fraud. 3. Their case, as set out in the Company Petition, was as follows: M/s. Lexus Technologies Pvt. Ltd. was incorporated under the provisions of the Companies Act, 1956, on 28.03.2000. Its authorized share capital was 1,50,00,000/-, divided into 15,00,000 equity Rs. shares of Rs.10/- each. The issued, subscribed and paid-up capital of the company was Rs.1,10,96,230/-, divided into 11,09,623 equity shares of Rs.10 each. The company is in the business of software development and ancillary activities and it acquired land at Chinnakakani Village in Guntur District in January, 2002, for establishing its infrastructure. On 09.03.2004, Mantena Narasa Raju, respondent No.2, had entered into a share purchase agreement with one C. Suresh, shareholder of the company, and acquired 10,51,933 equity shares, representing 94.8% of the equity share capital of the company. Thereafter, Mantena Narasa Raju and Appa Rao Mukkamala, respondent Nos. 2 and 3, were appointed as Directors of the Company on 02.03.2004. Suresh Anne, respondent No.4, became a Director of the company on 30.09.2004. While so, on 18.04.2015, the appellants acquired the equity shares held by Mantena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim reliefs pending disposal of the Company Petition. In the first instance, the NCLT directed status quo to be maintained as regards the company's assets and invited objections from the other side. 5. The company, respondent No.1, filed a counter opposing the grant of interim reliefs. Therein, it contended that the appellants could not allege oppression and mismanagement as they were not members of the company and were, in fact, seeking rectification of the Register of Members in that regard. The transfer of shares, as claimed by the appellants, was denied and, in consequence, their locus to maintain the company petition was challenged. Issue of limitation was also raised as the appellants' claim was that they had acquired the shares on 18.04.2015 but the company petition was filed only on 09.11.2018, i.e., after the lapse of over three years. The company alleged that it had received emails from respondent Nos. 3 and 4 stating that the appellants had forged their signatures on the purported share certificates and the company asserted that the NCLT would have no jurisdiction to adjudicate such allegations of fraud and only the competent civil court could decide the same. 6. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be borne by respondent No.2 and it was accordingly adjusted, leading to the lesser sum of Rs.14,66,39,465/- being paid. 8. Thereupon, the NCLT, through the Member (Judicial), passed an interim order on 27.06.2019. Having considered the matter, the NCLT noted as follows: Respondent No.2 had addressed letter dated 29.12.2014 (Annexure A-1) to the Board of Directors of the company expressing his intention to sell his shareholding therein. A Board Meeting was held on 24.01.2015 to consider his request and it was found that there was no buyer within the existing shareholders who was willing to purchase the shares of respondent No. 2. This was stated to have been communicated to respondent No.2 leaving it open to him to make his own arrangement for sale of his shares to outsiders. It was in these circumstances that the appellants purchased the shares of respondent No.2. By e-mail dated 20.04.2015 (Annexure A-4), respondent No.3 sought the approval of the other shareholders for sale of these shares in favour of the appellants. A meeting was held on 27.04.2015 in this regard and share certificates were also issued on the said date to the appellants. These share certificates were signed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. As on that date, per the NCLT, respondent No.2 relied upon the communication allegedly received by him from respondent Nos. 3 and 4, but the authenticity of the same still remained to be proved, as respondent Nos. 3 and 4 had not filed any affidavit. The NCLT also noted that there were conflicting materials produced by both sides and at that stage, it could not be decided whether the signatures in the share certificates did not belong to respondent Nos. 3 and 4 and the issue required to be thoroughly examined at the time of final hearing. 9. Dealing with the issue of limitation, the NCLT observed that the case of the appellants was that they came to know of their names being excluded only after the company filed financial accounts and statements for the years 2014-15, 2015-16 and 2016-17, and the petition was filed within three years from the date of such knowledge. Opining that limitation was a mixed question of fact and law, the NCLT stated that it needed to be examined at the final hearing stage, after the parties filed all their documents. The NCLT also rejected the contention of the respondents that it had no jurisdiction to try the petition as it involved issues of fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , by the Petitioners. (4) Whether the share certificates purportedly issued to the Petitioners are genuine. (5) Whether any relief can be granted to the Petitioners or whether the petition is maintainable.' 12. On the issue of limitation in point No.1, the Acting President baldly summed up that filing of the petition by the appellants was an afterthought and, therefore, the question of limitation did not arise, as the petition was not filed within the limitation period of three years. This cryptic approach in para 9.2 was not in keeping with the observation of the Member (Judicial) of the NCLT in the interim order that limitation, being a mixed question of law and fact, required to be examined fully. 13. On point No.2, the Acting President rejected the case of the appellants, by way of brief para 9.3, completely ignoring the points set out by the Member (Judicial) in the interim order and the material placed on record, such as the share transfer forms, share certificates and emails/ correspondence, which supported the case of the appellants. His categorical finding that 'not a single document existed between the parties to show that there was a transfer of shares and not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason, the company had been entangled in the dispute. The case of the appellants was held to be fraudulent in nature and devoid of fact and law. He, accordingly, dismissed the case with costs of Rs.5,00,000/-. 17. Aggrieved by the dismissal of their petition, the appellants approached the National Company Law Appellate Tribunal, Chennai Bench (NCLAT), by way of Company Appeal (AT) (CH) No. 44 of 2021. They also filed I.A. No. 548 of 2021 therein for interim relief pending its disposal. However, the NCLAT dismissed their appeal and I.A. by judgment dated 10.04.2023. Speaking for the Bench, the Member (Technical) referred to the facts of the case; the contentions of the parties; the points for consideration set out by the NCLT and its findings thereon. Thereafter, the relevant provisions of the Act of 2013 were extracted at length and again, reference was made to the contentions of both sides. Having done so, the NCLAT curiously concluded that L. Ramesh had remitted through his 'known persons' the sum of 14,66,39,400/- Rs. into the bank account of respondent No. 2. The NCLAT then strangely observed as follows: 'First of all, the money has not been transferred by the 'Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be available only to a person who is a member of the company. The NCLAT accordingly dismissed the appeal and the I.A. as devoid of merit, leading to the filing of these appeals. 19. IA Nos. 171771 and 168458 of 2023 filed in one of these appeals by the appellants seeking permission to file additional documents are allowed and the said documents are taken on record. IA No. 72990 of 2024 is also allowed at the sole risk and peril of the appellants, permitting deletion of the name of respondent No. 6 from the array of parties. 20. While ordering notice in these appeals on 01.09.2023, this Court raised certain questions, which the appellants were required to answer. The questions read as follows: '1. Why, after acquiring the shares, the appellants did not come on the Board of Directors? 2. Why the appellants did not attend or call upon the Directors to hold the Annual General Meeting(s)? 3. Why the appellants did not take steps as the annual accounts were not audited and submitted to them and with the Registrar of Companies.' The appellants were directed to file an affidavit dealing with the aforesaid aspects. Pursuant thereto, Affidavit of Compliance dated 08.12.2023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these circumstances that the company petition was filed before the NCLT. The appellants asserted that it was due to these reasons that they could not call for an Annual General Meeting, as they were not shown as shareholders of the company. 22. In response to the third query as to why they did not take steps when the annual accounts were not audited and submitted to them or with the Registrar of Companies, the appellants stated that, as they were informed that there was a police case against the Auditor of the company, they could not take any steps to get the accounts audited and submitted to them. They further stated that due to the fiduciary relationship between respondents 2 to 4 and the appellants, they never suspected that the respondents were not holding Annual General Meetings and were mis-managing the affairs of the company. Further, the Directors are stated to have promised that the issue would be settled and that the Annual Returns would be updated with the Registrar of Companies and that the investors' names would be updated. However, despite such assurances by the Directors, the appellants deemed it prudent to inspect the records of the company by accessing its mast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressly barring the jurisdiction of the civil court, it was observed that where the 'Court' as defined under the Act is exercising its powers under various sections, where it has been vested with exclusive jurisdiction, the jurisdiction of the civil court is impliedly barred. It was, therefore, held that to the extent the 'Court' has exclusive jurisdiction under Section 155, the jurisdiction of the civil court is impliedly barred. But for what is not covered as aforesaid, the civil court would have jurisdiction. Noting that the jurisdiction of the 'Court' under Section 155 is summary in nature, it was held that it would be appropriate for the 'Court' to see for itself whether any document alleged to be forged is said to be so, only to exclude the jurisdiction of the 'Court' or it is genuinely so. As the High Court, exercising jurisdiction under Section 155 of the Companies Act, 1956, had not examined the case in this light, this Court remanded the matter to the High Court for decision afresh. The observations in paragraph 26 of the judgment are of relevance in this regard and are extracted below: "26. The proviso gave discretion to the court to direct an issue of law to be tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion' of the Register fall within the summary jurisdiction of the Company Law Board and only complex questions of title fall outside its jurisdiction. It was observed that there is a thin line in appreciating the scope of jurisdiction of the Company Court and the jurisdiction is exclusive, if the matter truly relates to 'rectification', but if the issue is alien to 'rectification', such matter may not be within the exclusive jurisdiction of the Company Court. 27. In Adesh Kaur vs. Eicher Motors Limited and others (2018) 7 SCC 709 , this Court found, on facts, that it was an open-and-shut case of fraud, in which the appellant who had applied for rectification had been the victim, and held that the appellate tribunal was not correct in relegating the appellant to the civil court on the ground that a criminal complaint and a SEBI investigation were pending and in holding that it was not proper for the National Company Law Tribunal to exercise power to rectify the Register under Section 59 of the Companies Act, 2013. 28. In Shashi Prakash Khemka (Dead) through legal representatives and another vs. NEPC MICON (Now NEPC India Limited) and others ( 2019 ) 18 SCC 569, this Court again had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of India (SEBI) was conferred with regulatory jurisdiction, which included ex-ante powers to predict possible violations and take preventive measures. This Court held that the role of SEBI as a regulator could not be circumvented by applying for rectification under Section 111-A of the Act of 1956 and that, such an approach would be impermissible as scrutiny and examination of a transaction allegedly conducted in violation of the Regulations has to be processed through the rules and remedies provided in the Regulations themselves. This Court emphasized that when Constitutional Courts are called upon to interpret provisions affecting exercise of powers and jurisdiction by regulatory bodies, it is the duty of the Court to ensure that transactions falling within the province of the regulators are necessarily subjected to their scrutiny and regulation. It was pointed out that this would ensure that the regulatory body charged with the duty to protect the consumers has real-time control over the sector, thereby realizing the purpose of its constitution. It was, therefore, held that the purpose of these regulations could not be short-circuited by making an application to the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier decision in Shashi Prakash Khemka (supra) had concluded that the jurisdiction of the civil court would be barred by referring to the provisions of Section 430 of the Act of 2013. Neither this provision nor this decision was noticed by this Court in IFB Agro Industries Limited (supra). However, it would be wrong to hold that, for the said reason, there is a conflict between these two decisions. The jurisdiction of the civil court or for that matter, any other forum, would be barred only when the subject matter of the dispute squarely falls within the domain and jurisdiction of the court/forum constituted under the provisions of the Act of 1956/Act of 2013. When and where the Act of 1956/Act of 2013 does not confer such exclusive jurisdiction on the court/forum constituted thereunder or the dispute falls outside the realm of that particular provision of the Act of 1956/Act of 2013, the jurisdiction of the civil court would not be completely barred ( See Dhulabhai vs. State of Madhya Pradesh and another (1968) 3 SCR 662 ). Notably, the edict in Ammonia Supplies Corporation (P) Ltd. (supra) was also to this effect and it was followed and affirmed in the decisions that foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the National Company Law Tribunal would be entitled to exercise such power under Section 59 of the Act of 2013. Therefore, verification of this aspect was essential but the NCLT failed to discharge this mandate. 36. Another crucial fact that needs to be noted is that the interim order passed on 27.06.2019 by the Member (Judicial) of the NCLT had indicated, in clear terms, the issues that arose for consideration and the inquiry required to determine the same. However, ignoring the said interim order, the Acting President of the NCLT chose to summarily dismiss the petition, without considering the material already placed on record and without further evidence being adduced. The documents that were referred to and attached to the Company Petition and the appellants' rejoinder were glossed over or were completely ignored. Compounding the error of the Acting President of the NCLT, the NCLAT did not even get the facts right. Production of the original share certificates by the appellants and their argument, relying on Section 46 of the Act of 2013, that the signatures thereon by two Directors was sufficient in the eye of law, was totally lost sight of by the NCLAT. Further, the NCLA ..... 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