Introduction
In the dynamic landscape of legal jurisprudence, where every ruling holds the potential to reshape precedents and redefine legal boundaries, a recent judgment by the division bench of the Calcutta High Court in Eastern Indian Motion Picture Association & Ors. v. Mr. Milan Bhowmik & Ors. (‘EIMPA Ruling’) marks a significant departure from conventional interpretations. In doing so, the division bench reaffirmed a Calcutta High Court single judge’s ruling in this regard thereby injecting a fresh perspective into the delicate balance between specialized tribunals and civil courts in resolving shareholder disputes.
In this article we shed light on the analysis of complex legal questions surrounding jurisdiction, statutory interpretation, and the role of specialized tribunals in resolving shareholder disputes in the context of the EIMPA Ruling.
Factual Background
2 (two) members of the Eastern Indian Motion Picture Association, a company limited by guarantee (‘Association’) namely, Milan Bhowmik and Md. Nurul Hassain (‘plaintiffs’), filed a suit at the Calcutta High Court challenging the election of the executive committee of the Association for the term 2021-2023. The plaintiffs alleged that the election of certain committee members was null and void due to violation of the Association’s articles of association and election conduct rules. It was alleged that the voter’s list for the said tenure was manipulated by the named defendants and included members whose membership had expired and was renewed illegally. The defendants included the Association itself, as well as the members of the executive committee whose election was being challenged.
In their defence against the plaintiffs’ suit, the defendants swiftly sought to halt the proceedings through an application under Order 7 Rule 11 of the Code of Civil Procedure, 1908[1] (‘CPC’). The defendants underscored the jurisdictional intricacies governed by Section 430 of the Companies Act, 2013 (‘Act’)[2]. The provision explicitly delineates the authority of civil courts vis-à-vis tribunals, emphasizing that matters falling within the purview of specialized tribunals like the National Company Law Tribunal (‘NCLT’), or the National Company Law Appellate Tribunal are beyond the jurisdiction of civil courts.
Citing Section 241(1)(a) of the Act[3], the defendants contended that the dispute at hand fell squarely within the realm of corporate governance matters, specifically pertaining to allegations of conduct prejudicial/oppressive to the interests of the company or its members.
Arguing that the alleged acts, if proven, would constitute a breach of fiduciary duty towards the company and its shareholders, the defendants asserted that the civil court lacked jurisdiction to adjudicate upon such matters. Consequently, they maintained that the suit ought to be dismissed on grounds of jurisdictional impropriety.
The plaintiffs countered this by asserting that according to Section 244(1)(b) of the Act, not less than 1/5th (one-fifth) of the company’s members could jointly approach the NCLT under Section 241 of the Act in case of a company not having a share capital. Since only 2 (two) members raised the grievance in this case, they argued that the NCLT lacked jurisdiction to hear the matter, and it should be pursued in a civil court.
Despite the defendants highlighting that the NCLT had the authority to waive this minimum requirement under Section 244 of the Act on an application being made in this regard, the single judge found merit in the plaintiffs’ argument. The judge reasoned that “since the plaintiffs were only two in number, they did not possess the requisite strength to apply and had rightly approached the civil court by this suit”. He rejected the defendants’ argument relating to a waiver under Section 244 of the Act, citing that the application for waiver to be made to the NCLT under Section 244 would be a time-consuming process and that a civil suit would be a more effective remedy.
Side-stepping the statutory bar
Despite there being an express bar under the Act, the Calcutta High Court took a different route. While the court did not explicitly rely on Section 9 of the CPC, the provision underscores the broader concept that civil courts have jurisdiction over all civil suits unless expressly or impliedly barred. It reads as follows: “the Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.”
With regard to the above, the Delhi High Court in SAS Hospitality Pvt Ltd v. Surya Constructions Pvt Ltd[4] has clearly stated that “the bar contained in Section 430 of the 2013 Act is in respect of entertaining “any suit”, or “any proceeding” which the NCLT is “empowered to determine”. The NCLT would be empowered to pass any such orders as it thinks fit, for the smooth conduct of the affairs of the company, which would include an injunction order…The NCLT would also be empowered to oversee and supervise the working of the company, and also appoint such persons as it may deem necessary to regulate the affairs of the company…The jurisdiction to go into these allegations, vests with the Tribunal under Section 242 of the 2013 Act. Under Section 242(2), the NCLT has the power to pass “such order as it thinks fit”, including providing for “regulation of conduct of affairs of the company in future”. These powers are extremely broad and are more than what a Civil Court can do. Even if in the present case, the Court grants the reliefs sought for by the Plaintiff, after a full trial, the effective orders in respect of regulating the company, and administering the affairs of the company, cannot be passed in these proceedings. Such orders can only be passed by the NCLT, which has the exclusive jurisdiction to deal with the affairs of the company. Moreover, the powers of the NCLT being broader and wider than what can be exercised by this Court in exercise of civil jurisdiction under Section 9 CPC. The NCLT is a specialized Tribunal constituted for the purpose of speedier and effective regulation of the affairs of the companies”.
Further, in Cyrus Investments Pvt. Ltd. & Anr. V. Tata Sons Ltd. & Ors[5], it was held that “The fact that one or other member is ineligible to apply under Section 241 relating to allegation of ‘oppression and mismanagement’ will not empower the civil court to grant such relief, as can be granted by the tribunal under Section 242. No such power can be vested with the civil court on the ground that the member is ineligible to apply before the tribunal for alleged act of ‘oppression and mismanagement’.”
Additionally, in Shashi Prakash Khemka and Another v. NEPC Micon and Others[6], the Supreme Court held that the jurisdiction of civil courts would be fully prohibited under Section 430. This decision was made because the matter in question fell directly under the domain of Section 59 of the Act, where the NCLT holds exclusive jurisdiction.
However, in Jai Kumar Arya & Ors. v. Chhaya Devi & Anr[7], a contrary view had been taken. It was held that, “While examining the merits of these rival contentions, we are fully aware of the interpretative principle, now trite in law, that provisions which operate to exclude the ordinary jurisdiction of civil courts are to be strictly construed, and exclusion of such jurisdiction is not to be lightly inferred. The principle of exclusion of jurisdiction is, moreover, never absolute”.
Therefore, based on the judicial pronouncements provided above, there appears to be a noticeable disparity in perspectives regarding the jurisdiction under the Act. While some judgments lean towards granting civil courts authority over company law matters, there are instances where courts have interpreted differently, asserting that the NCLT is the appropriate and the only forum for adjudicating company-related issues.
Conclusion
The EIMPA Ruling has sparked considerable debate within legal circles, drawing attention to the intricate balance between the authority of civil courts and the specialized expertise of tribunals like the NCLT. By diverging from traditional interpretations and opting for a pragmatic approach, the Calcutta High Court has challenged established norms, prompting a re-evaluation of the legal framework governing company law disputes. This departure underscores the dynamic nature of jurisprudence and the necessity for a nuanced understanding of statutory provisions in navigating complex legal terrain.
Moreover, the contrasting perspectives reflected in various judicial pronouncements highlight the ongoing discourse surrounding jurisdictional delineations under the Act. While some interpretations advocate for the primacy of specialized tribunals in adjudicating corporate matters, others emphasize the importance of preserving the jurisdictional authority of civil courts. As legal practitioners grapple with these divergent views, the EIMPA Ruling serves as a catalyst for deeper analysis and reflection, guiding future legal developments and shaping the trajectory of corporate governance jurisprudence.
Written By Nidhi Arora (Partner) and Amiya Krishna Upadhyay (Associate)
[1] Rejection of plaint— The plaint shall be rejected in the following cases— (a) where it does not disclose a cause of action; (b) where the relief claimed is undervalued, and the plaintiff, on being required by the Court to correct the valuation within a time to be fixed by the Court, fails to do so; (c) where the relief claimed is properly valued, but the plaint is returned upon paper insufficiently stamped, and the plaintiff, on being required by the Court to supply the requisite stamp-paper within a time to be fixed by the Court, fails to do so; (d) where the suit appears from the statement in the plaint to be barred by any law; (e) where it is not filed in duplicate; (f) where the plaintiff fails to comply with the provisions of rule 9.
Provided that the time fixed by the Court for the correction of the valuation or supplying of the requisite stamp-paper shall not be extended unless the Court, for reasons to be recorded, is satisfied that the plaintiff was prevented by any cause of an exceptional nature from correcting the valuation or supplying the requisite stamp-paper, as the case may be, within the time fixed by the Court and that refusal to extend such time would cause grave injustice to the plaintiff.
[2] 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.
[3] Application to NCLT for Relief in Cases of Oppression – (1) Any member of a company who complains that— (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company, may apply to the NCLT, provided such member has a right to apply under section 244.
[4] (2019) 212 Comp Cas 102
[5] 2017 SCC OnLine NCLAT 261
[6] (2019) 18 SCC 569
[7] (2018) 142 CLA 365
