Spices Valley Estate... v. Tc Forexpress Ltd., ...

This revision has been preferred by the first defendant/company, as against the dismissal of the I.A, filed by it under Order 7, Rule 11 CPC to reject the Plaint.

2. According to the revision petitioner/first defendant they filed the said application for rejection of the Plaint filed by the respondent/plaintiff on the ground that there is no cause of action which arose to institute the suit before the City Civil Court at Chennai and therefore there is no territorial jurisdiction for the court to entertain the said suit. The respondent/plaintiff resisted the said application on the ground that the entire cause of action happened only in Chennai and therefore the suit filed before the City Civil Court, Chennai is well maintainable.

3. The learned XII Assistant Judge, City Civil Court, Chennai, on a consideration of the averments and the submissions of the learned counsels, dismissed the said application after finding from the perusal of the plaint that there exists a cause of action for the plaintiff to file the suit before the court as the plaintiff was removed from one of the Directors of the Company by a resolution in July 1999 at Chennai. As against the said order of dismissal the present CRP has been filed by the defendant.

4. The case of the respondent/plaintiff is that it has invested a sum of Rs. 75 lakhs which constitutes around 25% of the share capital of the first respondent company and it continues to be the shareholder of 25% shares and holds original share certificates till date. But the plaintiff company has been fraudulently removed from the Board of Directors of the first defendant company in the Annual General Meeting held on 1.7.1998 by a resolution. The first defendant also clandestinely filed Form 32 with the Registrar of Companies, Chennai wherein it has been shown that the nominee of the plaintiff company has resigned, even though there had been no letter of resignation furnished by the plaintiff company to the first respondent company to the said effect. The first defendant company without notice to the plaintiff company shifted its registered office on and from 11.2.2000 Further, the first defendant company had fraudulently transferred the shares of the plaintiff company without due consent of the plaintiff company. Hence the suit was filed for the relief of declaration that the resolutions passed in the Annual General Meeting held on 1.7.1998 was illegal, void and inoperative and for other consequential reliefs.

5. Learned counsel for the revision petitioner/first defendant contended that the Civil Court has no jurisdiction in view of Section 111 of the Companies Act, 1956 which supersedes Section 155 of the companies Act, 1956 which gave limited power to civil court to deal with the matters concerning transfer of shares effective change in the share register etc., According to the learned counsel, any petition alleging mismanagement or oppression and suppression etc., falls within the ambit of Sections 397 and 398 of the Companies Act, 1956. As per Section 10 of the Act, the petition against the Company can be filed in the Court within whose jurisdiction the registered office of the company located. But, in the present case on and from 11.2.2000 the Registered Office of the revision petitioner was transferred to Calcutta whereas the suit was filed in June 2000. According to the first defendant, the plaintiff was aware of the shifting of the registered office from Chennai to Calcutta, yet it has filed the suit. Learned counsel contended that the reliefs claimed in the suit can be redressed by the Company Law Board and appealed to the High Court and therefore, the jurisdiction of the Civil Court is completely ousted.

6. Learned counsel for the revision petitioner/first defendant has taken this Court through the pleadings averred in the Plaintiff viz., Paragraph Nos: 14, 18, 19, 20, 22, 23, 24 and 25 and ultimately submitted that the plaintiff is aggrieved from oppression and mis-management of the conduct of internal administration or affairs of the first defendant company. The learned Counsel also submitted that Section 408(1) of the Act, provides ample power to the Central Government to prevent the oppression and mismanagement of internal administration/affairs of the company and the Company Law Board also has jurisdiction to appoint any person as the Director of the Company. He also contended that the Act contains all the provisions with regard to the appointment of Directors, removal of Directors and the like in Sections 252 to 323 of the Act and such acts are purely an internal affairs of the company and any grievance can be addressed only to the Company law Board. According to him, the allegations contained in the said paragraphs per se falls within the ambit of Section 397 and 398 of the Companies Act, 1956 and the plaintiff ought to have approached the Company Law Board for seeking the reliefs claimed in the Plaint and relied on the following decision in support of his contention.

7. In AIR 1997 SC 2189 = 1997 3 L.W 155 (Sri Ramdas Motor Transport Ltd., and others v. Tadi Adhinarayana Reddy and others), Apex Court held that when the Companies Act itself provides for effective remedy, the remedy under Writ jurisdiction cannot be resorted to. In the said decision it is also observed that a shareholder has very effective remedies under the Companies Act for prevention of oppression and mismanagement.

8. But the above decision deals with the invocation of Writ jurisdiction filed by an shareholder and it deals with oppression and mismanagement.

9. In CRA No. 597 of 1990 (Khetan Industries Private Ltd., and others v. Manju Ravindraprasad Khetan) the Bombay High Court held that removal of Director of a Limited Company is a matter related to internal management of the Company and civil court has no jurisdiction since detailed procedures are provided in the Act itself which should be dealt with in accordance with such procedures.

10. In Union of India and another v. Swadeshi Cotton Mills Co., ltd., and another, reported in AIR 1978 SC 1818, the Hon'ble Supreme Court held that the specialised body with responsibility to watchdog corporate process is the Company Law Board and to rectify any defect in the orders passed by it the High Court has jurisdiction. However, this decision arose out of the induction of new directors.

11. In CRA 885 of 1989 (Vitthalrao Narayanrao Patil v. Maharashtra State Seeds Corporation Ltd., and another) which is a case whereby a Managing Director of the Corporation was intimated that he has ceased to be a Director of the company and when the same was challenge in a suit, the Bombay High Court held that there is no jurisdiction for the trial court to entertain the suit.

12. The decision relied on in C.P No. 138 of 2001 (K. Venkat Rao v. V. Rockwool (India) Ltd and others of the Andhra Pradesh High Court only deals with the locus standi of the Company Court to entertain an petition under Section 283 (10(f) of the Act and it has no relevancy at all to the facts of the present case.

13. Learned counsel for the revision petitioner referred to prayer in the Plaint viz., paragraph 28(b) and (c.) which are to the effect to declare the alleged resolution that was passed at the AGM held on 1.7.1998 as illegal, void and inoperative. According to the learned counsel, as regards conduct of AGM Sections 166 to 197 of the Act deal with the same and conduct of AGM and passing of resolutions thereat are internal affairs of the company. Similarly in case of change in the Board of Directors, the Company Law Board has powers to prevent the same under Section 409(1) of the Act and the Board has powers to make interim measures under Section 403 of the Companies Act.

14. In this respect the learned counsel also relied on the judgment in FMA. No. 214 of 2003 (Calcutta Cosmopolitan Club ltd., v. Bhanwarlal Bhandari and others) wherein the Calcutta High Court laid down that before passing an order the court has to examine as to whether it has jurisdiction or not and has to prima facie satisfy itself that ti has jurisdiction on the face of the averments made in the plaint even if not raised. The decision rendered in CR. No: 51 of 2003 (Jai Prakash Industries Ltd., Lucknow v. Lalit Bhasin by the Allahabad High Court (Lucknow Bench) is also to the said effect.

15. But in the case on hand, the Trial Court after adducing sufficient reasons on going through the entire averments contained in the Plaint, rejected the I.A, holding that the Civil Court has jurisdiction and therefore the above decisions are also not applicable to the present case.

16. Learned counsel for the revision petitioner also contended that the prayer for declaration that Form 32 filed by the first defendant company on behalf of the plaintiff is illegal, void and inoperative, filing of the Form 32 with the Registrar of Companies is incidental to the change in Directorship and a change in the Board of Directors of the first defendant company. Therefore the relief sought for in this regard have to be adjudicated upon only by the Company Law Board.

17. As regards the prayer to direct the second defendant to render true and proper accounts of all the sums due and payable it is submitted by the learned counsel that under Section 234 (7) and 234 (A) of the Act the Registrar of Companies as well as the Central Government under Sections 235, 236 an 237 of the said Act, have powers and the plaintiff can file a petition for such a relief before the Company Law Board. In this regard the learned counsel relied upon the judgement of the Apex Court in AIR 1998 SC 3153 = 1999 1 L.W 53 (Ammonia Supplies Corporation (P) Ltd., v. Modern Plastic Containers Pvt Ltd., wherein their Lordships have held that for rectification of Register of Members, the Civil Court's jurisdiction is implicitly barred.

18. The Learned counsel for the revision petitioner/first defendant contended that the entire Companies Act 1956 is a self contained Code and the allegations in the suit are pertaining to oppression and mis-management of internal affairs of the company and the said allegations squarely fall within the ambit of various provisions of Companies Act, 1956. Therefores per Section 9 CPC, the civil courts are barred from usurping the jurisdiction of the Company Court is explicitly or impliedly barred. It is a settled law that the special/particular enactment will prevail over general enactment as has been held in AIR 1961 SC 1170 (J.K Cotton Spinnign and Weaving Mills Co., Ltd., v. State of Uttar Pradesh and others).

19. On the other hand, learned counsel for the revision petitioner contended that as per Section 9 CPC, the Civil Court has jurisdiction to try all suits of civil nature, except where their jurisdiction has been specifically excluded. Therefore, Civil Courts alone will have jurisdiction to decide the rights of the parties in disputes arising under the Companies Act except where the jurisdiction has been expressly excluded. Learned counsel relied on the judgement of the Kerala High Court in Dr. T.M Paul v. City Hospital (Pvt) Ltd., and others reported in Vol. 97 Company Cases page 216, wherein a Division Bench of the Kerala High court held that Civil Court's jurisdiction is not excluded under the Companies Act where the relief is for declaration that the meeting of Directors and Resolution passed thereat are invalid, as the dispute arises out of common laws.

20. Placing reliance on the above judgement, it is contended that the cause of action arose when the alleged resolution dated 1.7.1998 has been passed and at the point of time, the Registered Office of the company was in Chennai. It is also contended that now the first defendant's company has been allegedly taken over by the 4th defendant company as per the submission of the first defendant and the said 4th defendant has been set ex parte in the I.A, before the trial court and therefore the first defendant company has no locus standi to question the legality of the plaintiff in filing the suit.

21. Learned counsel for the respondent-plaintiff also contended that the first defendant company filed Form-32 with Registrar of Companies, Chennai citing that the nominee of the respondent-company as having resigned when there was no letter of resignation from the respondent/plaintiff nor any consent letter to this effect. This is so done with malafide intention, in order to do away with the presence of the plaintiff company. This aspect can be decided only in the trial.

22. The next contention of the learned counsel is that the revision petitioner had allegedly transferred the shares held by the plaintiff company in a fraudulent manner to the other defendants when it is having the possession of the original share certificates, while the records filed by the revision petitioner before the Registrar of Companies, Chennai shows that the same as having been transferred. This is a clear case of fraud committed by the revision petitioner when it was having the registered Office at Chennai and therefore the casue of action for the suit arose in Chennai.

23. It is also contended that there is no statutory information for the requisition letter sent on 23.9.1999 sent by the plaintiff company to the Registrar of Companies or furnishing of annual accounts to the plaintiff company. The first defendant did not send any reply tot he letter dated 24.1.2000; of the Registrar of Companies, Chennai as to the alleged irregularities. Though in the Annual Return filed it is stated that the shares have been transferred even as on 10.7.1999, but offer of transfer of shares along with share transfer form was called for only on 20.7.1999 This shows the fraudulent transfer of shares of the plaintiff.

24. Further, there was intimation of any notice of the registered office being shifted from Chennai to Calcutta, yet this will not debar the plaintiff from filing the suit as cause of action has arisen only in Chennai.

25. As regards the the jurisdiction of the Courts, the learned counsel relied upon the judgment of this Court in Thiruvalluvar Velanmai Kazhagam Pvt. Ltd. v. M.K. Seethai Achi. reported in Vol. 64 Company Cases, page 304) wherein this court held that a suit filed by the company as against the former Managing Director for rendition of accounts is not a matter falling within the provisions of the Companies Act and it is only the Civil Court which has jurisdiction.

26. In Avanthi Explosives P Ltd., v. Principal Subordinate Judge, Tirupathi and another reported in vol.62 Com. Cases page 301, it has been held that where the matters pertains to individual rights or where the majority cannot sanction the acts that are challenged, it is an exception of internal management/affairs and the civil court has jurisdiction to try such suits. In the said judgement the suit is for a declaration that the plaintiff was not disqualified to be Director of Managing Director, wherein the interest was also not disclosed, it was held that the suit is maintainable.

27. Learned counsel also contended that Plaint can be rejected only where the suit appears from the statement in the Plaint to be barred by any law. But a perusal of the plaint herein would show that the suit is not barred by any law as even as per the Companies Act, 1956, jurisdiction of the Civil Court is not expressly excluded. Sec. 9 of CPC also provides for trying of suits unless it is expressly barred by any other enactment.

28. Learned counsel for the respondent/plaintiff referring to Section 10 of the Companies Act as to the jurisdiction of the civil court provided thereunder contended that Section 10 of the said Act makes it abundantly clear that the provisions of the Companies Act does not bar the jurisdiction of the Civil Court. Even as per Section 10 of the said Act, to file an application under Section 397 and 398 of the Companies Act, 1956, the person should be a member holding not less than 1/10 of issued share capital. This fact of share holding of the plaintiff has been disputed by the revision petitioner/defendant in its written statement and also in the I.A, to reject the plaint. Since it is disputed question of fact, whether the plaintiff holds share or not, it has to be tried only by the civil court. The Company Law Aboard does not have jurisdiction to try disputed questions of fact, regarding share holding. This aspect of the matter has been dealt with and supported by the following Supreme Court judgments: (i) (Dwarka Pradsad Agarwal (D) by LRs and another v. Ramesh Chander Agarwal and others (2003 (6) SCC 220 = 2003 4 L.W 255); and (ii) Sangramsingh and others v. Shantadevi Gaekwad (d) by LRs and others (566 Company Cases Vol. 123).

29. In the instant case also, the plaint averments are very clear and the reliefs claimed are of a civil nature, which cannot be adjudicated by the Company Law Board. Further, the 4th defendant who has taken over the defendant company has not contested the case and has been set ex parte. Therefore, strictly speaking the revision petitioner/first defendant has no locus standi to agitate all these issues.

30. Learned Counsel for the respondent/plaintiff relied upon the judgement of the Apex Court in Maya (HK) Ltd., v. Owner and Parties Vessel MV Fortune Express, reported in 2006 (3) SCC page 100 wherein it is clearly laid down that so long as the plaint discloses some cause of action which require determination by the Court, the mere fact that in the opinion of the Judge the plaintiff may not succeed cannot be a ground for rejection of the Plaint. In the present case, there is a clear disclosure of the fact that the cause of action arises only in Chennai. In the above case it is also laid down that for ousting jurisdiction of the court the entire plaint has to be read, and when there are pleadings regarding misrepresentation, fraud, willful default, undue influence, material facts have to be gone into and this can be adjudicated only in a civil court.

31. In the present case also the plaintiff in the plaint pleaded allegations of misrepresentation as to the resignation, fraud in transferring the shares, willful default in furnishing details, suppression of fact as to the change of registered office etc., which are material facts and the same have to be necessarily adjudicated only in a civil court.

32. In Popat and Kotecha Property v. State Bank of India Staff Association, reported in 2005 (7) SCC 510 = 2006 1 L.W 748, the Apex Court held that Order 7 Rule 11(d) applies only where the statement as made in the Plaint without any doubt or dispute shows that the suit is barred by any law in force and it does not apply in case of any disputed question.

33. It is also submitted that the revision petitioner has fraudulently transferred the share of the respondent/plaintiff company while the shares are still in the possession of the respondent/plaintiff company. Further, the revision petitioner also filed Form 32 with mala fide intention and without the consent of the plaintiff company in order to show that the nominee of the plaintiff company as having resigned. These acts were done with the sole motive to ensure that the respondent/plaintiff company has no locus standi prima facie before any Court or the Company Law Board, either as a nominee of the plaintiff company or as a share holder.

34. Considering the submissions of the counsel appearing on either side and the decisions of the various High Courts and the Hon'ble Supreme Court relied upon by both sides, I am of the considered view that in the instant case the jurisdiction of the civil court is not ousted since the pleadings in the plaint would reveal that cause of action has arisen for instituting the suit in Chennai and there is allegation of misrepresentation, fraud, failure to furnish details, dishonest or mala fide intention, suppression of material facts, removing of the plaintiff from the directorship by a resolution; etc., which are disputed question of facts which have to be necessarily determined and adjudicated only by civil courts after letting in oral and documentary evidence. In fact the many of the decisions cited by the revision petitioner/first defendant is of Mumbai or Calcutta High Courts, whereas the decisions cited by the respondent/plaintiff are of Hon'ble Supreme Court of India which are latter in point of time than the decisions cited by the revision petitioner, are binding on this court. For the argument sake, even to file a petition before the Company Law Board, as per Section 10 of the Companies Act, the plaintiff company should be a member holding not less than 1/10 of issued share capital. But in this case even the share holding of the plaintiff has been disputed by the revision petitioner/first defendant company. For all these reasons, it is clear that the issues involved in this matter requires the adjudication of the civil court and therefore, the dismissal of the Interlocutory Application by the trial court does not warrant any interference.

In the result, this CRP is dismissed. Consequently, connected Miscellaneous Petition is also dismissed. No costs.

VCJ/VCS