Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
We all aware that there is no
express provision barring the Civil Courts to entertain certain company
disputes under the Companies Act, 1956. We have been seeing the cases where the
Civil Court entertains Company disputes if there is no specific remedial
measure before the Company Law Board or the Company Court. The issue of Civil
Court’s Jurisdiction to entertain certain company matters is also supported by
the Constitutional Courts on the ground that there is no specific bar under the
existing Companies Act, 1956 barring the Civil Courts in entertaining Company
matters and on the ground that the Companies Act, 1956 do no provide all
remedial measures to all the shareholders before the Company Law Board or the
Company Court.
It is true that adjudicating a
company dispute requires specialization and the Civil Court may not effectively
adjudicate a Company dispute. We are all aware of the inevitable complications
under Company Law. Laudably, an effort has been made to bar the Civil Court’s
jurisdiction to entertain company matters in the Companies Bill, 2009 or in the
proposed new Companies Act replacing Companies Act, 1956.
Section 391 of the Companies
Bill, 2009 dealing with the Civil Court’s Jurisdiction is extracted below:
“391. 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”.
The object of section 391 in the
proposed Companies Act is to exclude the Civil Courts in entertaining company
disputes and to avoid the jurisdictional ambiguity. Under the existing
Companies Act, 1956, shareholders who are qualified to approach the Company Law
Board under section 397/398 may choose to approach the Civil Court rather the
Company Law Board.
In CDS Financial Services
(Mauritius) Limited Vs. BPL Communications Limited and others, (2004) 121 Comp
Cases 375, it was held that “when there is no express provision excluding the
jurisdiction of the Civil Courts, such exclusion can be implied only in cases
where a right itself is created and the machinery of enforcement of such right
is also provided by the statute. If the right is traceable to the general law
of contracts or it is a common law right, it can be enforced through the Civil
Court, even though the forum under the statute also will have jurisdiction to
enforce that right. Sections 397, 398 and 408 of the Companies Act, 1956, do
not confer exclusive jurisdiction on the company court to grant reliefs against
oppression and mismanagement. The scope of these sections is to provide a
convenient remedy for minority shareholders under certain conditions and the
provisions therein are not intended to exclude all other remedies”.
Now, with the express bar under
section 391 of the proposed act, if a remedy is available before the National
Company Law Tribunal etc. then, no Civil Court can entertain a suit.
But we need to address an issue
as to what is the situation if a particular relief is not available to the
shareholders before the National Company Law Tribunal or under the new
Companies Act?
Under such circumstances, despite
section 391 in the proposed Companies Act, it may be very difficult to bar the
Civil Courts in entertaining Company Disputes or it may be difficult to lay
down a proposition that no shareholder can approach the Civil Court against the
managerial personnel, the management or the Company.
It is true that the Civil Court
may not be effective like the proposed National Company Law Tribunal, but, when
a remedy is not provided before the Tribunal, the shareholders will obviously
be approaching the Civil Courts and it may even be supported by the
Constitutional Courts in future.
It is true that the Civil Courts
jurisdiction is effectively barred under certain enactments like Securitization
Law and it is not usual to see a Civil Court to entertain a dispute under
Securitization Act upon which the Debt Recovery Tribunal shall have jurisdiction.
It is possible under the Securitization Law in view of the limited scope of the
subject matter. Under Securitization Law, it is only about the determination of
debt or the legality of the action taken by the Bank under the Act. Only the
Bank, the borrowers, the guarantors and in some cases a third party, is
interested in a securitization case, but, that is not the case with a Company
litigation. The Company Law Board, Company Court or the National Company Law
Tribunal as the case may be should consider many issues before passing an order
in a Company dispute.
In order to achieve the objective
of barring the Civil Court’s Jurisdiction effectively, we need a detailed
provision barring the Civil Court’s Jurisdiction and there should be a
provision similar to section 151 of C.P.C in the proposed Companies Act giving
liberty to the shareholders or the members to approach the Tribunal for the
relief which is not specifically provided under the Act. If there is such an
arrangement under the proposed Act, the National Company Law Tribunal shall
decide the maintainability of the applications or the petitions and can pass
appropriate orders.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
