SECTION 59 OF COMPANIES ACT, 2013: A QUESTION OF JURISDICTION?
SECTION
59 OF COMPANIES ACT, 2013: A QUESTION OF JURISDICTION?
(CS
SHUBHAM BUDHIRAJA)
INTRODUCTION
Ubi jus ibi remedium
– where there is a right, there is remedy.
Right and remedy are
two sides of same coin and they cannot be separated from each other.
The term jurisdiction
has not been defined in law. It is derived from the latin terms- juris
& dicto which means – I speak by the law.
If the court has no
inherent jurisdiction, neither acquiescence nor waiver nor estoppel can create
it. A Defect of jurisdiction goes to the root and such a fundamental defect
cannot be cured by consent of parties and the judgment or order passed by such
a court is null and void irrespective of fact that how certain and technically
correct and thus validity of it can be challenged at any stage.[1]
A decree passed by a
court without jurisdiction is a coram non judice
CODE
OF CIVIL PROCEDURE, 1908
Section 9 of code of
civil procedure, 1908 -
The Court shall have
jurisdiction to try all suits of a civil nature excepting suits of which their
cognizance is either expressly or impliedly barred.
There are 2 conditions-
a.
The suit must be of a civil nature
b.
The cognizance of such a suit should
not have been expressly or impliedly barred.
The word civil
is not defined in code but it means – to private rights and remedies as
different from political, criminal. The word nature refers to quality,
identity or essentials. It is thus wider in content.
The term civil nature
is wider than civil proceedings. The term suit of civil nature would cover the
private rights and obligations of a citizen. Political and religious questions
are not covered by it. A suit in which principal question is related to caste
or religion is not a suit of civil nature though it is a civil suit. But if the
principal question is right to property or an office and adjudication
incidentally involves the determination of question relating to caste,
religious rights, it doesn’t ceased to be a suit of civil nature and
jurisdiction of civil court would not be barred.
The expansive nature of section 9 is demonstrated
by use of phraseology both positive and negative. The earlier part opens the
door widely whereas latter debars entry only to those which are expressly or
impliedly barred. The two explanations clearly expanding the operation of
section as to religious matters where right to property or office is
involved. The word shall , all suits of civil
nature
cast an obligation on court to exercise jurisdiction for enforcement of rights.
[2]
1.
Where a statute gives finality to
orders of special tribunals, the civil court jurisdiction must be held to be
excluded if the remedy provided is adequate remedy and is same as what a civil
court otherwise would do.
However,
even if finality is given such provisions cannot exclude the jurisdiction of
civil court if such provisions are not in compliance or such tribunal has not acted
in conformity with fundamental principles of judicial procedure
2.
Where there is an express bar, an
examination of scheme of particular act may be relevant but not conclusive to
decide jurisdiction of civil court. However, where there is no express, the
examination of remedies and scheme of particular act become conclusive to
decide jurisdiction of civil court.
3.
Where the particular act contains no
machinery, the suit would not be barred.
4.
Exclusion of jurisdiction of civil
court should be strictly construed and every presumption should be made in
favor of a civil court.
The question came before Bombay high court as to
what should be done where in a suit before civil court an issue arise to settle
, decide or deal where the jurisdiction of civil court is ousted. It was held
that in such a situation, the civil court should be stayed and parties should
referred the question to be decided by competent authority. Further the
decision of a competent authority is binding upon civil court and dispose the suit
accordingly. [4]
COMPANIES ACT, 2013
Section 59 of companies act, 2013-
(1) If the name of any person is, without sufficient cause, entered in
the register of members of a company, or
after having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary
delay takes place in entering in the register, the fact
of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal
in such form as may be prescribed, to the
Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or
debenture holders residing outside India, for
rectification of the register.
(2) The Tribunal may, after hearing the parties to the appeal under
sub-section (1) by order, either dismiss the
appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the
order or direct rectification of the records of the
depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved.
(3) The provisions of this section shall not restrict the right of a
holder of securities, to transfer such securities
and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an
order of the Tribunal.
(4) Where the transfer of securities is in contravention of any of the
provisions of the Securities Contracts
(Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or this Act or any other law for the time being in
force, the Tribunal may, on an application made by the
depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any
company or a depository to set right the contravention and
rectify its register or records concerned.
(5) If any default is made in complying with the order of the Tribunal
under this section, the company shall
be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer
of the company who is in default shall be punishable
with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which
may extend to three lakh rupees, or with both.
Section 430 of companies act, 2013-
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 Tribunal.
COMPANIES ACT, 1956
Section 111(4) - (5)
of Companies act, 1956-
(4) If- (a) the name
of any person -
(i)
is, without sufficient cause, entered
in the register of members of a company, or]
(ii)
after having been entered in the
register, is, without sufficient cause, omitted therefrom; or
(b) default is made,
or unnecessary delay takes place, in entering in the register the fact of any
person having become, or ceased to be a member including a refusal under
sub-section (1), the person aggrieved, or any member of the company, or the
company, may apply to the Tribunal for rectification of the register.
(5) The Tribunal, while dealing with an appeal
preferred under subsection (2) or an application made under sub-section (4)
may, after hearing the parties, either dismiss the appeal or reject the
application, or by order –
(a)
direct that the transfer or transmission
shall be registered by the company and the company shall comply with such order
within ten days of the receipt of the order; or
(b) direct
rectification of the register and also direct the company to pay damages, if
any, sustained by any party aggrieved.
Section 111A(3) of Companies act, 1956
(3)The Tribunal may,
on an application made by a depository, company, participant or investor or the
Securities and Exchange Board of India, if the transfer of shares or debentures
is in contravention of any of the provisions of the Securities and Exchange
Board of India Act, 1992 (15 of 1992) or regulations made thereunder or the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) or any
other law for the time being in force, within two months from the date of
transfer of any shares or debentures held by a depository or from the date on
which the instrument of transfer or intimation of the transmission was
delivered to the company, as the case may be, after such inquiry as it thinks
fit, direct any depository or company to rectify its register or records.
ANALYSIS
A reading of the above provisions makes it
clear that, the extent of the NCLT's jurisdiction under the 2013 Act qua
rectification claims is substantially the same as what was previously conferred
under the 1956 Act to the CLB. Under both enactments, what is conferred is only
the power of "rectification". This means that the corresponding
ouster of civil court's jurisdiction will also be of identical scope. The only
difference is that under the 1956 Act, the ouster was an implied one as held in
Ammonia Supplies whilst under the 2013 Act, the ouster was an express one. The
express or implied nature of a bar on jurisdiction cannot really affect the
width of such bar. Section 430 is thus analytically irrelevant since it does
nothing new other than convert an implied bar on civil court jurisdiction into
an express one.
Application for ratification in register of member
are usually preferred by persons who claim to be members of a company and whose
membership (such as name, extent of shareholding held, etc.) is not correctly
filed in the register of members that is statutorily required to be maintained
by all companies. Since membership carries with it several important rights
such as voting, right to receive dividend, etc., actions for rectification are usually
hotly contested and seriously pursued by claimants. Under the Companies Act,
1956 (the "1956 Act"), prior to 1991, such applications for rectification were initially
filed under Section 155
before the "Court" as defined under Section 2(11) r/w. Section
10 (the "Company Court"). Section 155 was repealed by the Companies
(Amendment) Act, 1988 w.e.f. 31.05.1991) and after 1991, such applications in
respect of private companies and deemed public companies were filed under Section
111 before the Company Law Board (the "CLB"). In 1997, Section 111A
was introduced with regard to rectification of registers in public
companies as well. Section 59 of the Companies Act, 2013 (the "2013
Act") now confers the power of rectification of the members register on the
National Company Law Tribunal ("NCLT").
The governing precedent for the nature and scope
of rectification claims under
the 1956 Act was the Supreme Court's judgment in Ammonia Supplies. In Ammonia Supplies, the Supreme Court
was considering a pre-1991 case under Section 155 before the Company Court, but
the principles laid down there largely held the field even with regard to post-1991
actions before the Company Law Board under Sections 111 and 111A. The Court
held that actions for rectification
under Section 155 were proceedings of a summary nature, and that the Company
Court which was statutorily conferred with jurisdiction to decide such actions
would have exclusive jurisdiction to do so, and also to decide "any
question raised within the peripheral field of rectification." There
was held to be an "implied bar" on the plenary jurisdiction of civil
courts to adjudicate rectification
claims. However, where an action for rectification was "based on some
seriously disputed civil rights or title, denial of any transaction or any
other basic facts which may be the foundation to claim a right to be a
member", the Company Court would have the "discretion" to send
the party seek his relief before a "civil court first for adjudication
of such facts." In other words, Ammonia Supplies held that: "the
court under it has discretion to find whether the dispute raised are
really for rectification
or is of such a nature, unless decided first it would not come within the purview
of rectification. The word
'rectification' itself
connotes some error which has crept in requiring correction. Error would only
mean everything as required under the law has been done yet by some mistake the
name is either committed or wrongly recorded in the register of the
Company." As per Ammonia Supplies, the Company Court considering a rectification claim should examine
the materials: "to see whether even prima facie what is said is
complicated question or not. Even dispute of fraud, if by bare perusal of the
document or what is apparent on the face of it on comparison of any disputed
signature with that of the admitted signature the Court is able to conclude no
fraud, then it should proceed to decide the matter and not reject it only
because fraud is stated." [5]
In
Khemka, the Supreme Court was considering an SLP that
arose from proceedings under Section 111A of the 1956 Act. A claimant had
approached the CLB seeking rectification. The CLB had rejected a
preliminary plea of limitation and decided to hear the matter on merits. The
CLB's order was challenged before the Madras High Court. The High Court allowed
the challenge, reversed the decision of the CLB, and in effect, relegated the
parties to a civil suit. This was challenged before the Supreme Court. It appears
that the matter was not properly contested in the Supreme Court since the judgment
records that no counsel appeared for the Respondent. The Supreme Court, in Khemka,
reversed the High Court's order, and in a brief, cryptic judgment, held as
follows: "Learned Counsel for the Appellants has drawn our attention to
the view expressed in Ammonia Supplies Corporation P. Ltd. v. Modern Plastic
Containers P. Ltd. MANU/SC/0585/1998 : (1998) 7 SCC 1053, to canvass the
proposition that while examining the scope of Section 155 (the predecessor to
Section 111), a view was taken that the power was fairly wide, but in case of a
serious dispute as to title, the matter could be relegated to a civil suit. The
submission of learned Counsel is that the subsequent legal developments to the
impugned order have a direct effect on the present case as the Companies Act,
2013 has been amended which provides for the power of rectification of the
register Under Section 59 of the said Act. Learned Counsel has also drawn our
attention to Section 430 of the Act, which reads as under: 5. The effect of the
aforesaid provision is that in matters in respect of which power has been
conferred on the National Company Law Tribunal, the jurisdiction of the civil
court is completely barred. 6. It is not in dispute that were a dispute to
arise today, the civil suit remedy would be completely barred and the power
would be vested with the National Company Law Tribunal Under Section 59 of the
said Act. We are conscious of the fact that in the present case, the cause of
action has arisen at a stage prior to this enactment. However, we are of the
view that relegating the parties to civil suit now would not be the appropriate
remedy, especially considering the manner in which Section 430 of the Act is widely
worded[6]…."
CONFLICT OF JUDGMENTS
In its heavy reliance on Section 430 of the 2013
Act, the Khemka judgment puts the cart before the horse. Section 430 expressly
bars the jurisdiction of civil courts "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." A plain reading makes
it manifestly clear that the civil court's jurisdiction is diminished only to
the extent that the NCLT has been correspondingly "empowered". The
extent of civil court ouster is directly proportional to extent of conferment
of jurisdiction on the NCLT. Thus, the starting point of inquiry in Khemka
ought to have been: does the 2013 Act confer any wider jurisdiction on the
NCLTs than what was previously conferred under the 1956 Act? The short and simple
answer to this question is: "No, it does not. In fact, the 2013 Act
confers less jurisdiction on the NCLT than what was conferred on the CLB under
the 1956 Act." the Ammonia Supplies principle of rerouting parties to a
civil court in complicated claims was two-fold: (i) the "summary
nature" of the proceedings in rectification actions; and (ii) the limited
meaning of the word "rectification".
The Supreme Court, in Khemka, has not explained how either of these
considerations have changed under the 2013 Act. Under Section 59 of the 2013
Act, the NCLTs have been empowered to decide only claims for "rectification", just
like it was in the 1956 Act. "Rectification" has a special restricted
meaning as noted in Ammonia Supplies. At the cost of repetition, the limited
meaning of "rectification"
was explained in Ammonia Supplies as follows: "The word 'rectification' itself
connotes some error which has crept in requiring correction. Error would only
mean everything as required under the law has been done yet by some mistake the
name is either committed or wrongly recorded in the register of the
Company" It is this restrictive meaning of "rectification" that led
the court in Ammonia Supplies to distinguish between that are "really for
rectification" and claims "of such a nature, unless
decided first it would not come
within the purview of rectification"
. It is latter case for rectification
that could be re-routed to a civil court. There is nothing to suggest in the
wording of Section 59 that the meaning of "rectification" would be
any different under the 2013 Act. There is also nothing to suggest that the
proceedings before the NCLT in Section 59 proceedings would be anything but summary
in nature. The Khemka judgment simply fails to address these questions.
CONCLUSION
As per the principle underlying by Section 9 of
code of civil procedure, 1908, the jurisdiction of a civil court cannot be ousted unless
expressly or impliedly barred. Apart from that, it is a well settled principle
that even if jurisdiction is barred , the same can still be lie before civil
court if it is proved that the remedy is an inadequate remedy and is not
according to principles of natural justice. On path of same, section 430 of
companies act, 2013 has been drafted. However, in order to understand section
430, the reference needs to be made both to section 9 of code of civil
procedure as well as corresponding provisions of companies act, 1956. Section 430 of new companies act has done
nothing but convert the implied created by old companies act into an express
bar. It is pertinent to note that per se express bar is not a reason to oust
the jurisdiction of a civil court. National company law tribunal cannot be
imputed to adjudicate the questions which are incidental to main issue. It is
submitted that it is a well settled principle that such questions are to be
decided by competent authority and further the court/NCLT has to decide the
main issue on basis of findings of competent authority on such incidental
question. Hence, to read section 430 of companies act,2013 as blanket approval
to NCLT to decide all and every claim out of section 59 of companies act, 2013
appear as to read more than what was imputed by legislature on said provision.
DISCLAIMER
The views and opinions expressed in this article are those of the
authors and do not necessarily reflect the official policy or position of any
agency of the Indian government. Examples of analysis performed within this
article are only examples. They should not be utilized in real-world analytic
products as they are based only on very limited and dated open source
information. Assumptions made within the analysis are not reflective of the
position of any Indian government State.
The author is a Practicing company
secretary and founder of Budhiraja & co. Further, he is a Second Year Law
student at faculty of law, University of Delhi and a Para Legal volunteer with
Delhi State Legal Service authority and is an active Participant in Moot Court
society of his college.
+919654055315
[1]
A.R Antulay v. R.s Nayak
[2]
PMA Metropolitan v. Muran Marmarthoma
[3]
Dhulabhai v. State of Madhya Pradesh
[4] Dhondi
Tukaram vs Dadoo Piraji And Ors
[5]
Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers
(1998) 7 SCC 105
[6]
Shashi Prakash Khemka v. NEPC Micon
(2019) SCC OnLine SC 223
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