K. Venkat Rao v. Rockwool (India) Ltd., Hyd. And Others

The Judgment of the Court was delivered by

S.B Sinha, C.J:— Whether an application filed by a Director of a Company before a Company Judge challenging a notice in terms whereof his shares were directed to be forfeited and he was directed to vacate the Office, can be entertained by this Court is the question involved in this petition.

REASONS FOR REFERENCE:

2. A learned Company Judge having noticed two conflicting decisions in Nizamabad Corn. Products Pvt. Ltd. v. Vasudev Dalia, 1992 (2) ALT 303 and in Avanthi Explosives v. Principal Subordinate Judge, 1987 (62) CC 301, as regards jurisdiction of this Court to entertain such petition, referred the matter for a decision by appropriate Bench. When the matter was listed before a Division Bench of this Court, it, having regard to the importance of the question involved in the matter referred the matter to Full Bench by an order dated 17.10.2001

FACTS:

3. The petitioner herein by reason of the impugned notices was declared to have ceased to be a Director of the first respondent company with effect from 21.7.2001 in terms of Section 283(1)(f) of the Companies Act on the ground that he had failed to deposit the call money of the shares. The said decision was communicated to him by notice dated 30.8.2001 by the first respondent. The Company Petition was filed praying that this Court declare the notice dated 30.8.2001 as also another notice dated 30.8.2001 issued by the respondent company to the petitioner as illegal, ultra vires the Articles of Association of the respondent company and the provisions of Sections 283 and 292 of the Companies Act, 1956 (for brevity ‘the said Act), null and void.

4. Section 283 of the said Act provides for certain contingencies on occurrence of which the office of the Director shall become vacant.

SUBMISSIONS:

5. Mr. Kodanda Ram, the learned counsel appearing on behalf of the petitioner would submit that having regard to the definition of ‘Court’ as contained in Section 2(11) as also the provisions contained in Section 10 of the said Act, an application filed before a Company Judge is maintainable despite the fact that the Civil Court may also have jurisdiction to adjudicate upon the dispute. The learned counsel would contend that the Company Court is also a Civil Court, and if a right can be adjudicated in a Civil Court, the same can also be adjudicated upon by a Company Court.

6. The learned counsel in support of his contention has placed strong reliance on the decisions in Avanthi Explosives (supra), Nava Samaj Ltd. v. Civil Judge, Class I Rajnandgaon, AIR 1966 MP 286, British India Corporation v. Robert Menzies, 1936 (6) CC 250.

7. Mr. Bimal Bhaskar, the learned counsel appearing for the respondents on the other hand would submit that the Civil Court having regard to the provisions contained in Section 9 of the C.P.C has got the exclusive jurisdiction to deal with such matter. The learned counsel would contend that Section 283(1)(f) postulates automatic cessation of directorship and no application challenging the same is contemplated in respect thereof. Strong reliance in this connection has been placed on Santosh Poddar v. Kamalkumar Poddar, 1992 (3) Bom. Cr 310, Radhakrishnan v. Thirumani Asphalts and Pelts, 1998 (91) CC 31, Tejprakash S. Dandi v. Coramandal Pharmaceuticals Ltd., (2001) 43 CLA 21.

STATUTES:

8. Section 2(11) of the Companies Act defines ‘Court’ to mean

(a) with respect to any matter relating to a company (other than any offence against this Act), the Court having jurisdiction under the Act with respect to that matter relating to that company, as provided in Section 10;

(b) with respect to any offence against this Act, the Court of a Magistrate of the First Class, or as the case may be, a Presidency Magistrate, having jurisdiction to try such offence.

9. Section 10 of the Companies Act reads thus:

(1) The Court having jurisdiction under this Act shall be—

a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of sub-section (2); and

(b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district.

(2) The Central Government may, by notification in the Official Gazette and subject to such restrictions, limitations and conditions as it things fit, empower any District Court to exercise all or any of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred—

(a) in respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407, both inclusive,

(b) in respect of companies with a paid-up share capital of not less than one lakh of rupees, by Part VII (Sections 425 to 560) and the other provisions of this Act relating to the winding up of companies.

(3) For the purposes of jurisdiction to wind up companies, the expression “registered office” means the place which has longest been the registered office of the company during the six months immediately preceding the presentation of the petition for winding up.

10. Section 283(1)(f) reads thus:

The office of a director shall become vacant if

(f) he fails to pay any call in respect of shares of the company held by him, whether alone or jointly with others, within six months from the last date fixed for the payment of the call [unless the Central Government has, by notification in the Official Gazette, removed the disqualification incurred by such failure];

11. Rule 9 of the Companies (Court) Rules reads thus:

Inherent powers of Court:—Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court.

FINDINGS:

12. The definition of ‘the Court’ contained in Section 2(11) must be read conjunctively with Section 10 for a proper interpretation.

13. The difference in phraseology used in Clauses contained in (a) & (b) of Sec. 10(1) must be noticed for the said purpose. The jurisdiction of the High Court under Section 10 is a wide one. Save and except to the extent of any jurisdiction conferred on the District Court by the Central Government by a notification in the official gazette or by the Act, residuary jurisdiction is vested only in the High Court.

14. However, a word of caution must be expressed. The High Court does not however have a general or residuary jurisdiction to deal with all the questions arising out of the Companies Act. The Court has a jurisdiction with respect to any matter relating to a Company.

15. The phrase ‘relating to’ is of wide amplitude.

16. In Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale, (1995) 2 SCC 665 : AIR 1995 SC 1102, it was observed:

The words ‘relating to’ are of wide import and can take in their sweep any suit in which the grievance is made that the defendant is threatening to illegally recover possession from the plaintiff - licensee.

17. The phrase ‘relating to’ means that the provisions must bear upon treaties, etc., as its dominant purpose or theme. It is not sufficient if the treaties, etc., are mentioned there for some collateral purpose as was observed in Madhava Rao Scindia v. Union of India, (1971) 1 SCC 85 : AIR 1971 SC 530.

18. As per Law Lexicon by P. Ramanatha Aiyar, the phrase ‘relating to’ as it occurs in an enactment restrictive of the right to sue, must be construed strictly i.e in favour of the right to proceed.

19. Clause (a) of Section 2(11) excludes only offences against the Act in relation whereto the Court of a Magistrate of the First Class or a Presidency Magistrate having jurisdiction is the proper Court.

20. In the aforementioned backdrop, the question raised in this application has to be answered. There cannot be any doubt that in view of the provisions contained in Section 9 of the Code of Civil Procedure, ouster of jurisdiction of Civil Court is not inferred. It may be ousted only expressly or by necessary implication, (see C.V Ratnam v. Union of India, 2001 (6) ALD 35).

21. The disqualification in terms of Section 283(1)(f) is a statutory one. It may be true that the disqualification incurred is automatic, but such disqualification is subject to the fulfilment of the conditions precedent therefor.

22. A director who is said to have ceased to be a director on his alleged failure to pay the call money is entitled to contend that the jurisdictional fact leading to incurring such disqualification did not occur. The petitioner has incurred a liability or is divested of some right only in terms of the said Act. Rights and obligations created under a statute for the first time should ordinarily be adjudicated in a forum which has been created under the same statute.

23. In Tejprakash S. Dandi (supra) referring to Wolver Hampton New Water Works Co. v. Hankesford, (1884) 7 WR 464, a Division Bench of this Court held in the fact of that case that if the appellants had a right to sue, that can only be by an action under the common law. It held that the Civil Court would have jurisdiction unless it is expressly or by implication ousted.

24. A learned single Judge of the Madras High Court in Radhakrishnan (supra) inter alia observed that Section 283 of the Companies Act, 1956 sets out circumstances on the occurrence of which the office of a director shall become vacant. The section does not contemplate any application being made to the company Court either to declare that the office has been vacated or to declare that the office has not been vacated. No application can be entertained by the company Court.

25. With respect, we cannot subscribe to the aforementioned views having regard to the fact that in law it cannot be countenanced that even if a person has wrongly been held to be disqualified or to have ceased to hold the office of the Director, he will have no remedy whatsoever.

26. In Premier Automobiles Ltd. v. Kamalakar Shantaram Wadke, (1976) 1 SCC 496 : AIR 1975 SC 2238, it was observed:

…..But where the industrial dispute is for the purpose of enforcing any right, obligation or liability under the general law or the common law and not a right, obligation or liability created under the Act, then alternative forums are there giving an election to the suitor to choose his remedy of either moving the machinery under the Act or to approach the civil court. It ‘is plain that he can't have both. He has to choose the one or the other. But we shall presently show that the civil court will have no jurisdiction to try and adjudicate upon an industrial dispute if it concerned enforcement of certain right or liability created only under the Act. In that event civil court will have no jurisdiction even to grant a decree of injunction to prevent the threatened injury on account of the alleged breach of contract if the contract is one which is recognized by and enforceable under the Act alone.

27. In British India Corpn., (supra), Iqbal Ahmad, J. speaking for a Division Bench while was considering the matter where a shareholder filed an application before the District Judge at Kanpur praying for supply of the names and addresses of the Corporation, observed:

“As has been pointed out by the learned District Judge, it is a fundamental principle of legal administration that where the law requires something to be done there must be in existence a Court that can directly order it to be done. It is well understood in all systems of civilised jurisprudence that where there is a right there is a remedy. It is conceded on behalf of the applicant that Mr. Menzies had the right to demand and to be furnished with a copy of the register of the members of the Corporation. But if the argument of the applicant is pressed to its logical consequence it follows that there was no remedy available to Mr. Menzies for the enforcement of this right. It is needless to say that we cannot credit the Legislature with an omission of this description.

28. Whether the contingency resulting in vacation of Office by operation of statute occurred or not is always a question of fact. In the event there exists any dispute on the said issue, the same is required to be resolved by a Court of law.

29. A Director of a company has a right to continue to hold the said post until and unless he vacates the Office in terms of Section 283 or is removed in terms of Section 284 of the said Act. Such a right can be enforced by calling the Company Court to adjudicate on the question as to whether he has incurred such disqualification or not.

30. In Nava Samaj Ltd., (supra), P.V Dixit, C.J followed the decision in British India Corporation (supra) and held that the Company Court has exclusive jurisdiction in the matter. It was observed:

The necessary implication of Section 8 of the Act of 1918 as also of Section 10 of the Act of 1956, is to exclude jurisdiction of other Courts in regard to matters covered by the Companies Act. In connection with the exclusion of jurisdiction of other Courts, the line of inquiry is not whether there is any provision besides Sec. 10 in the Companies Act giving the Company Court exclusive jurisdiction in Company matters. But it is whether after having specified the Courts having jurisdiction under the Companies Act, the said Act contains an ‘otherwise’ provision excluding the jurisdiction of the Company Court in matters falling under the Companies Act.

31. Pandey, J., however having regard to the provisions contained in Section 9 of the Civil Procedure Code held that the Company Court does not have exclusive jurisdiction and observed:

As I have endeavoured to indicate earlier, in order to determine whether the Company Court has exclusive jurisdiction to deal with a particular matter relating to a company, the line of enquiry should be whether the Act has, in regard to that matter, created a right or liability not existing under the general law and has also, at the same time, given a particular and special remedy for enforcing it.

32. The said decision has been followed by a learned single Judge of the Calcutta High Court in Hirendra Bhandra v. Trtiton Engg. Co. Ltd., 80 Cal. WN 242, holding that the Company Judge alone has exclusive jurisdiction. In Vitthalrao Narayanarao Patil v. Maharashtra State Seeds Corpn., Ltd., 1990 (68) CC 608, the decision in Hirendra Bhadra (supra) has been followed. However, I. Panduranga Rao, J., in Nizamabad Corn. Products (supra) held that Civil Court has no jurisdiction to entertain the suit observing:

The learned Judge of our High Court who decided Avanthi Explosives case has not taken into consideration this particular aspect of the case that Section 283 of the Act is not one of the Sections in respect of which jurisdiction has been conferred on Civil Court. The view that merely because Section 10 of the Act confers jurisdiction on the High Court the jurisdiction of the Civil Court has not been taken away cannot be correct in view of the specific direction contained in Section 10(1)(a) viz., “except to the extent to which jurisdiction has been conferred on any District Court in pursuance of Sub-section (2)”. Sub-section (2) reveals that Section 283 is not one of the Sections in respect of which jurisdiction has been conferred on Civil Courts.

33. In Avanthi Explosives (supra), M. Jagannatha Rao, J. (as His Lordship then was) upon considering the provisions of Section 10 of the said Act vis-a-vis the powers of a Civil Court observed:

In my view, Section 10 of the Act only proceeds to enumerate or specify “the Court having jurisdiction under this Act” wherever such jurisdiction is conferred on ‘the Court’ by the other provisions of the Act. Powers are conferred by the Act not only on Courts but also on other authorities like the Central Government, the Company Law Board and the Registrar, and where a power is vested in a Court, that Court has to be specified. Beyond so specifying the Court competent to deal with a matter arising under the Act, Section 10 does not purport to invest the company Court with jurisdiction over every matter arising under the Act. It may be that, in view of the elaborate provisions contained in the 1956 Act in regard to the management and the conduct of a company's affairs including important internal matters of administration, the Court's interference by civil Court has become more limited, but the power has not at all been taken away. Every suit for redress of individual wrongs cannot be considered as merely concerned with matters of internal management.

34. In the said decision, the question which arose for consideration was as to whether the jurisdiction of the Civil Court is ousted. The Court in the said case had no occasion to consider as to whether the High Court had any jurisdiction to deal in the matter.

35. Yet again in Santosh Poddar (supra), a Division Bench of Bombay High Court while considering the question where a suit was filed for a declaration that the first defendant has ceased to be a Director, it was directed that the decisions taken by the Board of Directors were void. Referring to Sections 2(11) and 10 of the Companies Act, it was opined:

It is however, quite clear from reading of these two sections that there is no ouster of the jurisdiction of a Civil Court in all cases where the provisions of the Companies Act may be attracted. It is only in respect of these proceedings which are expressly contemplated under the Companies Act under any specific provision that the Court which is referred to in that section would be the special Court, namely the High Court or the Notified District Court. In all other cases, ordinarily Civil Courts would continue to have jurisdiction. This has been so held by a learned Single Judge of our High Court in the case of Rao Saheb Marilal Gangaram Sindore v. Western India Theatres Ltd., (LXIV BOM. L.R p. 532) (underlining is ours)

36. Having regard to the nature of the suit, it was observed:

In our view, therefore, the claims in the two suits before us are not claims which are required to be decided in any special forum prescribed under the Companies Act. Hence, they are not governed by section 10 of the Companies Act. Therefore, the jurisdiction of the Civil Court to entertain and try these two suits will be governed by the provisions of the Civil Procedure Code read with the suit Valuation Act and the Bombay Court Fees Act.

37. In our opinion, Section 2(11) read with Section 10 of the Act must be construed so as to give it a purposeful meaning.

38. Section 283(1)(f) creates a statutory liability under the Companies Act which is not contemplated under a common law. A statutory right or a statutory disqualification created under a special statute in our considered opinion leave no manner of doubt that an application in relation thereto would lie before a Company Court. Automatic cessation of Office of Director of a Company has a direct nexus with the function of the Company itself. It is not a case where the Court is required to deal with a transaction by and between a company and the third party. We are therefore of the opinion that Company Court has the requisite jurisdiction to entertain the application. As at presently advised, we need not go into the question as to whether the jurisdiction of the Civil Court is ousted or not.

39. The doctrine of Ubi Jus Ibi Remedium which has been noticed in several of the decisions referred to hereinbefore would fill up the gap and thus in our considered view, an application shall be maintainable to the aforementioned extent and the Company Court will have jurisdiction to entertain such application. It appears that the third respondent has filed an application under Section 8 of the Arbitration and Conciliation Act, 1996. The matter may now be remitted to the appropriate Bench for consideration of the matters as also the application filed under the Arbitration and Conciliation Act for a decision on merit.

40. The question referred to the Bench is answered accordingly. Costs of this reference shall be the costs in the main application.