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Eternit Everest Ltd. v. Neelmani Bhartiya
Structured Summary of the Provided Opinion
Factual and Procedural Background
The respondent (plaintiff in the trial Court) filed a suit styled for declaration, injunction and cancellation of original shares and issuance of duplicate shares in respect of 300 shares of M/s Eternit Everest Ltd. The plaint alleges that the plaintiff had purchased 300 shares and that the share certificates were recorded in his name but were subsequently lost and untraceable. The plaint states that the plaintiff had signed transfer deeds while attempting to sell the shares through brokers, and that both the share certificates and transfer deeds were lost. After serving a notice to the defendant(s) asking them not to transfer the shares, the plaintiff later discovered from the company's office that some of the shares had been transferred to other persons and some were yet to be transferred.
The plaintiff claimed to be declared owner of the original 300 shares and of 300 bonus shares he was said to be entitled to, sought injunctions against transfer without his consent and consequential reliefs including issuance of duplicate certificates and cancellation of transfers.
The defendants applied under Order 7, Rule 11 CPC read with Section 151 CPC seeking rejection of the plaint. The trial Court rejected that application. The present opinion arises from a revision petition challenging the trial Court's rejection of the Order 7, Rule 11 application. The High Court allowed the revision petition, set aside the trial Court's order and rejected the plaint.
Legal Issues Presented
- Whether the remedy/relief claimed in the plaint (rectification/cancellation of registration of shares and issuance of duplicate shares) falls within the exclusive jurisdiction of the Company Law Board (or the statutory machinery under the Companies Act) — in particular under Section 111 (formerly Section 155) of the Companies Act — thereby implicitly ousting the jurisdiction of the Civil Court.
- Whether, for the purpose of determining an application under Order 7, Rule 11 CPC (i.e., whether the plaint discloses a cause of action cognizable by the Civil Court), the plaint discloses matters that must be adjudicated exclusively under the Companies Act machinery rather than by the Civil Court.
Arguments of the Parties
Defendants' Arguments
- The suit is impliedly barred by the provisions of Sections 111 and 113 of the Companies Act, 1956.
- The Companies Act provides a complete statutory machinery (Company Law Board/CLB powers) for dealing with grievances of this nature, and those special provisions oust the jurisdiction of the Civil Court.
Plaintiff's Arguments
- There is no express bar in the Companies Act against entertaining a suit in respect of shares; the suit is maintainable under Section 9 of the Civil Procedure Code.
- An implied bar to Civil Court jurisdiction cannot be readily inferred; the Civil Court retains the right to give a declaration as to title to shares where statute does not expressly exclude such jurisdiction.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| M/s. Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd., 1998 (6) JT SC 116; AIR 1998 SC 3153 | The Court (under Section 155 as earlier formulated and Section 111 as re-cast) has exclusive jurisdiction to order rectification of the register and to decide title questions within that rectification field; matters truly of rectification must be decided by the Company Court/CLB; matters not covered by that provision may be directed to Civil Court. | The opinion relied on this authority to show that where a plaint raises a true rectification grievance falling within Section 111(4) the statutory machinery has exclusive jurisdiction and the Civil Court is implicitly barred to that extent; hence the trial Court should have examined whether the plaint's grievance fell within the Companies Act remit for rectification. |
| Canara Bank v. Nuclear Power Corporation of India Ltd., 1995 (3) JT SC 42 | Describes the CLB's powers under Section 111 as including directing rectification of the register, awarding damages, deciding title questions of parties before it, making interim orders and having exclusive jurisdiction in respect of matters within Section 111; the CLB functions in place of the earlier Court powers under Section 155. | The opinion invoked this decision to underscore that the CLB performs the functions previously exercised by civil courts under Section 155 and that, insofar as Section 111 confers exclusive powers on the CLB, those matters are to be dealt with by the CLB rather than by Civil Courts. |
Court's Reasoning and Analysis
The Court began by noting binding authority that powers of rectification previously exercised by courts are now exercised by the Company Law Board under Section 111 of the Companies Act and that, where Section 111 confers exclusive jurisdiction, the Civil Court is implicitly barred.
The Court examined the plaint's factual averments: according to the plaint itself, 100 shares had been transferred on 5-9-1994, another 100 on 26-7-1994 and the remaining 100 were later also reported as transferred. The complaint in the plaint alleges that names of certain persons were entered in the register without sufficient cause. The Court concluded that these facts squarely invoke Section 111(4) of the Companies Act, which provides for applications to the Company Law Board for rectification of the register where a person's name has been entered without sufficient cause or omitted without sufficient cause.
The Court analysed the reliefs claimed: the core relief sought was cancellation of registrations in the names of the transferees and issuance of duplicate shares to the plaintiff; consequential reliefs included declaration and injunctions. The Court observed that cancellation/rectification of the register is the operative remedy and that once rectification occurs, the shares would automatically revert to the plaintiff, making a separate declaration redundant for that purpose.
The Court further noted that the transferees (whose registrations were sought to be cancelled) would be necessary parties to any civil suit for declaration, but they were not impleaded. Taken together — the nature of the reliefs claimed (rectification/cancellation), the facts pleaded (entries in the register made without sufficient cause), the absence of necessary parties, and the established law that rectification matters fall within the CLB's domain — the Court concluded that the plaint disclosed a cause of action that is cognizable by the Company Law Board under Section 111 and not by the Civil Court under Section 9 CPC.
On that basis, the Court found that the trial Court erred in rejecting the Order 7, Rule 11 CPC application and that the proper course was to reject the plaint for want of jurisdiction in the Civil Court over the subject matter pleaded.
Holding and Implications
Core Ruling: The revision petition is allowed; the order of the trial Court is set aside and the plaint is rejected.
Direct consequences (as stated in the opinion):
- The plaint is rejected by reason of the subject matter being clearly cognizable by the Company Law Board under Section 111 of the Companies Act.
- The trial Court's decision rejecting the defendants' Order 7, Rule 11 CPC application was set aside.
Broader implications: The opinion applies established Supreme Court authorities to reaffirm that matters of rectification of a company's register (entries made without sufficient cause / omission) fall within the exclusive statutory machinery under the Companies Act and are to be addressed before the Company Law Board. The opinion does not purport to lay down a new principle of law beyond the application of existing precedents.
1. This is a petition challenging decision of the trial Court rejecting an application under Order 7, Rule 11, CPC r/w Section 151, CPC. The respondent has filed a suit against the petitioners styling it to be a suit for declaration, injunction and cancellation of original shares and issuing duplicate shares. It was contended in the plaint that M/s Eternit Everest Ltd. is a Company which had floated a public issue of its shares which was being managed by M/s M.C.S. Ltd. The plaintiff had purchased 300 shares which were recorded in the plaintiff's name in the records of the company. It is further contended in the plaint that the share certificates issued by the company to the plaintiff were lost and are not traceable to the plaintiff. It was further contended that the plaintiff wanted to sell those shares and for that purpose he contacted certain Brokers from Bombay and the plaintiff had signed transfer deeds also for the purpose of forwarding the same to the share brokers for sale of the shares. It is stated that the share certificates along with transfer deeds have been lost. When the shares were not traceable the plaintiff served a notice on the defendant calling upon them not to transfer the shares in the name of anyone else as the shares had not been sold but have been lost. The plaintiff had in the notice expressed his inability to quote the serial number of the shares also as he did not have it. The plaintiff later on, on enquiry from the defendant's office came to know that some of the shares had been transferred in the name of some one else and some shares were yet to be transferred. Ultimately after some correspondence the plaintiff filed the present suit claiming that he be declared owner of the 300 shares which stood originally in his name and also of 300 bonus shares which he should have received as such share holder and all the benefits on the shares originally held by him and on the shares which he was entitled to receive as bonus shares be extended to him. An injunction had also been claimed against transfer of shares without consent of the plaintiff.
2. The defendants took the plea that the suit was implidely barred by the provisions of Section 111 and 113 of the Companies Act, 1956. It was contended that the Company Law provides a complete machinery for dealing with the grievances of the nature raised by the plaintiff in his suit and the provisions being special provisions oust the jurisdiction of the Civil Court. The contention of the plaintiff on the other hand was that there is no express bar against entertainment of a suit in respect of shares and the suit was maintainable under section 9 of the cpc. It was also contended that an implied bar cannot be easily inferred in the situation. The Civil Courts right to give a declaration as to the title to the shares cannot be said to be ousted by provisions of the Companies Act.
3. The trial Court agreed with the plaintiff and rejected the application. Hence this revision petition.
4. Sub-sections (4) to Sub-section (10) of Section 111 of the Companies Act which are relevant for the purpose read as under :--
"(4):-- If
(a) the name of any person-
(i) is without sufficient cause, entered in the register of members of a company or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom;
(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be, a member [including a refusal under Sub-section (1)j the person aggrieved, or any member of the company, or the company, may apply to the Company Law Board for rectification of the register.
(5):-- The Company Law Board, while dealing with an appeal preferred under Sub-section (2) or an application made under Sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by
(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order, or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.
(6):-- The Company Law Board, while acting under Sub-section (5), may, at its discretion,
(a) such interim orders, including any orders as to injunction or stay, as it may deem fit and just;
(b) such orders as to costs as it thinks fit, and
(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.
(7):-- On any application under this section, the Company Law Board
(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register,
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.
(8) The provisions of Sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture-holders as they apply in relation to the rectification of the register of members.
(9) If default is made in giving effect to the orders of the Company Law Board under this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to one thousand rupees and with a further fine which may extend to one hundred rupees for every day after the first day after which the default continues.
(10) Every appeal or application to the Company Law Board under Sub-section (2) or subsection (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed."
5. Earlier Section 155 of the Companies Act prior to its amendment provided as follows :--
"Section 155 :-- Power of Court to rectify register of
(a) the name of any person--
(i) is without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom, or
(b) default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be a member.
the person aggrieved, or any member of the Company, or the Company, may apply to the Court for rectification of the register."
6. By way of amendment now the aforesaid provisions are included in Section 111 of the Act.
7. In M/s. Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd., 1998 (6) JT SC 116: (AIR 1998 SC 3153) the Supreme Court in paragraph 27 observed that so far as exercise of power of rectification within its field there could be no doubt the Court as referred under Section 155 read with Section 2(11) and Section 10, it is the Company Court alone which has exclusive jurisdiction. Further in paragraph 31 it has further been observed that whenever a question is raised Court has to adjudicate on the facts and circumstance of each case. If it truly is rectification all matter raised in that connection should be decided by the Court under Section 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by Civil Court. Unless jurisdiction is expressly or implicitly barred under a statute, for violation or redress of any such right Civil Court would have jurisdiction. There is nothing under the Companies Act expressly barring the jurisdiction of the Civil Court, but the jurisdiction of the 'Court' as defined under the Act exercising its powers under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the Civil Court is implidely barred. It was held that the jurisdiction of the Court under Section 155 to the extent it has exclusive, the jurisdiction of Civil Court is implidely barred. For what is not covered under Section 155 the Civil Court would have jurisdiction.
8. The decision of the Supreme Court in Canara Bank v. Nuclear Power Corporation of India Ltd., 1995 (3) JT SC 42 is also noteworthy though it has not directly dealt with the question of exclusion of jurisdiction. In paragraph 16 it was observed as under :--
"16. It will be seen that the CLB now exercises the powers that were exercisable by the Court under Section 155. It is entitled to direct rectification of the register and the payment of damages by the company. It is entitled to decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register and to decide any question which it has necessary or expedient to decide in this connection. An appeal to the High Court against any decision or order of the CLB on a question of law is available to any person aggrieved, thereby under the provisions of section 10f."
In paragraph 31 it is observed as follows :--
31 :-- Now, under Section 111 of the Companies Act as amended with effect from 31st May, 1991, the CLB performs the functions that were therefore performed by Courts of civil judicature under Section 155. It is empowered to make orders directing rectification of the company register, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the company's register, and any question which it is necessary or expendient to decide. It may-make interim orders. Failure to comply with any order visits the company with a fine. In regard to all these matters it has exclusive jurisdiction (except under the provisions of the Special Court Act which is the issue before us). In exercising its function under Section 111 the CLB must, and does not act judicially. Its orders are appealable. The CLB, further, is a permanent body constituted under a statute. It is difficult to see how it can be said to be anything other than a Court particularly for the purposes of section 9a of the special act.
9. In view of the above quoted observations of the Supreme Court, the question which should have been decided by the trial Court was as to whether the grievance made in the plaint could be canvassed before the machinery set up by the Companies Act because on the answer to that question alone the fate of the application under Order 7, Rule 11, CPC depended. A perusal of the plaint would show that according to the plaintiff's own information 100 shares were transferred on 5-9-1994, another 100 shares on 26-7-1994 and only 100 shares remained to-be transferred. Lateron the Company informed the plaintiff that even those 100 shares have been transferred. Thus as regards these 300 shares it was clear case falling under Section 111(4) of the Companies Act as the complaint is that names of certain persons have been entered in the register of the members of the Company without any sufficient cause.
10. The relief claimed by the plaintiff that he should be declared to be the owner of the above 300 shares and duplicate shares be issued to him cancelling the transfer of these shares in favour of the transferees. All other reliefs are consequential. In the circumstances of the case when the plaintiff himself has stated that he had signed the transfer deeds and kept them along with the share certificates and ultimately it is found that some one has come to possess the transfer deeds and original shares and put them up before the Company for the shares being registered in their names, it is clearly a case of cancellation of such registration of shares in the name of the transferees obtained by misrepresentation or fraud or any other reason. There is no question of declaration because when the register is rectified, automatically, the shares would revert back to the plaintiff. Moreover, the transferees would be necessary parties to suit for any such declaration and they are not impleaded.
11. In the aforesaid circumstances the case is, clearly cognizable by the Company Law Board ' and as such not by the Civil Court under Section 9 of the Civil Procedure Code. The revision petition is allowed. The order of the trial Court is set aside and the plaint is rejected.
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