INTRODUCTION
In the recent judgment (given on March 24, 2014) by the Bombay High Court in the case of Madhu Ashok Kapur and Ors v. Rana Kapoor and ors., the Honourable High Court of Bombay has reaffirmed that jurisdiction of civil court is not barred for seeking remedy against grievances for which remedies have not been provided under Companies Act.
RELEVANT FACTS OF THE CASE
A suit was filed in the Bombay High Court by shareholders of a banking company challenging resolutions relating to appointment of directors and claiming declarations concerning the rights of the plaintiff shareholders under the Articles of Association of the company and injunctive reliefs against other shareholders based on these rights.
One of the preliminary issues before the High Court was whether it had jurisdiction to entertain and try the suit.
It was contended by the defendants that suit, being a civil suit challenging the appointment of directors was impliedly barred by the provisions of the Companies Act. On the other hand, it was contended by the plaintiffs that jurisdiction of civil courts to consider a challenge to the appointment of directors was not ousted by Companies Act.
Where a statute does not expressly bar jurisdiction of a civil court, it is necessary to examine the particular statute and remedies provided there under to find out whether or not there is intention to exclude jurisdiction. In that case it is necessary to see if the statute creates a special right or liability and provides for determination of that right or liability and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not.
In the case of Dwarka Prasad Agarwal v. Ramesh Chandra Agarwal the honourable Supreme Court of India noted various High Court decisions and held that the civil court’s jurisdiction is not completely ousted under the Companies Act. In the case of CDS Financial Services (Mauritius Ltd v. BPL Communications (P.) Ltd., the division bench of Bombay High Court whilst deciding on the jurisdiction of a civil court to deal with a suit by minority shareholders against oppression and mismanagement, held that sections 397 and 398 and 408 of Companies Act did not confer exclusive jurisdiction on the company court to grant reliefs against oppression and mismanagement. The scope of these sections was to provide a convenient remedy for minority shareholders under certain conditions and the provisions therein were not intended to exclude all other remedies and in the absence of words expressly or impliedly barring them it cannot be said that sections 397, 398 and 408 of the Companies Act exclude jurisdiction of the ordinary courts.
JUDGMENT OF THE BOMBAY HIGH COURT
The High Court held that as there was no remedy provided under the Companies Act by any particular court or forum or by recourse to any particular machinery for the offence of appointment of directors which was made ultravires to the articles of association of the Company, the jurisdiction of the civil court cannot be said to be impliedly barred by the Companies Act for redressal of such a grievance. Accordingly, the Court held that it had the jurisdiction to try the suit.
ANALYSIS AND COMMENTS
This judgment of the honourable High Court of Bombay although reaffirming the established legal position that the jurisdiction of civil courts is not barred for grievances whose remedies have not been provided under Companies Act, 1956, is still an important and a welcome decision for shareholders / directors of the Company particularly under circumstances where they are aggrieved by the actions of company’s Board of directors or particular director(s) but unfortunately they either do not meet the eligibility criteria (i.e. minimum 10% shareholding) for institution of suit in the Company Law Board or the allegations do not strictly fall under the ambit of “oppression” and “mismanagement” as under section 397 and 398 of Companies Act, 1956.
Although this judgment of Bombay High Court deals with jurisdiction of civil courts to grant remedies against grievances whose remedies have not been provided under Companies Act, interestingly, the Court has noted the judgment of CDS Financial Services (supra), in which the division bench of the same Court has held that in the absence of words expressly or impliedly barring the jurisdiction of civil courts, sections 397 and 398 of the Companies Act (the said sections relate to oppression and mismanagement) did not exclude jurisdiction of the ordinary courts. This perhaps implies that even for cases relating to oppression and mismanagement which are ordinarily heard by the Company Law, the plaintiff may as well approach the High Court for suitable remedies instead of Company Law Board.
Position under Companies Act, 2013
Under the Companies Act, 2013, powers have been given to National Company Law Tribunal for trying of suits for oppression and mismanagement. Section 430 of Companies Act, 2013 expressly states that no civil court will have jurisdiction to entertain any suit or proceeding in respect of any matter which the NCLT or the Appellate Tribunal is empowered to determine by or under Companies Act, 2013 or any other law for the time being in force and no injunction can 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 the Companies Act, 2013 or any other law for the time being in force, by the NCLT or the Appellate Tribunal.
Also, pursuant to the provisions of section 242 and 245 of the said Act, wide powers have been granted to NCLT for remedies to be provided in cases of oppression and mismanagement and class action suits. However, considering that the basis principle / essence of oppression and mismanagement remain the same, it is possible that that in cases where NCLT may not have the jurisdiction to try suits of nature mentioned in this case of Madhu Kapur and in that event, the plaintiff may still have to and in fact will be entitled to approach the High Court for seeking appropriate remedy.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.