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Case Number
Attorney(S)
  • N.N.Chakraorty
  • Tapash Ch.Ray
  • Manab Banerjee
  • Girija Sankar Sengupta
Judges
  • Mr. Justice N.C. Mukherji
Acts
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Citation Codes
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citation codes
Case Number
Attorney(S)
  • N.N.Chakraorty
  • Tapash Ch.Ray
  • Manab Banerjee
  • Girija Sankar Sengupta
Judges
  • Mr. Justice N.C. Mukherji
Acts
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Smart Summary

Judgment Summary — N.C. Mukherji, J.

Factual and Procedural Background

The opposite party (plaintiff) filed Title Suit No. 2 of 1974 in the Court of the Munsif, First Court, Durgapur on 4 January 1974 against the present petitioner (defendant). The plaint alleged that the petitioner, a permanent director of the plaintiff company, carried on business supplying spare parts and other materials in contravention of section 299 of the Companies Act, 1956, and thereby became disqualified to hold office as a director.

It was alleged that Shri P. K. Basu learnt of this on 3 December 1973 and that the company's Board of Directors met on 28 December 1973 and passed a resolution inter alia declaring that the petitioner had or must be deemed to have vacated the office of director with effect from at least 29 January 1972, under section 283 read with clause 42 of the company's articles, for contravention of section 299. The plaint sought declarations (validity and binding nature of the board resolution; that the petitioner had vacated the office as from 29 January 1972 or an earlier date; and that the petitioner had no right to act as director) and a decree for perpetual injunction restraining the petitioner from acting or interfering with the company's affairs.

Long after institution of the suit the petitioner became aware of it, appeared and filed an application dated 18 February 1974 challenging the inherent jurisdiction of the munsif's court to try the suit. The learned Munsif rejected that application by order dated 26 March 1974. The petitioner challenged that order by the present application to the High Court.

Legal Issues Presented

  1. Whether the learned Munsif's court had jurisdiction to entertain the suit alleging contravention of provisions of the Companies Act, 1956 (notably section 299 and related provisions), or whether jurisdiction is solely with the courts specified under section 10 of the Companies Act.
  2. Whether the remedies and procedures provided by the Companies Act (including sections 283, 284, 299 and related provisions) are the appropriate and exclusive means to address the alleged conduct of a director, thereby excluding the civil court's jurisdiction to grant declarations and injunctions in respect of those matters.

Arguments of the Parties

Petitioner's Arguments (Mr. Tapas Chandra Ray)

  • The learned Munsif acted illegally and in excess of jurisdiction by rejecting the petitioner's challenge to jurisdiction.
  • The plaintiff's suit is essentially founded on rights or remedies created by the Companies Act, 1956, and the company and its directors are creatures of that Act; consequently the plaintiff is not entitled to relief based on general/common law in a civil court.
  • The learned Munsif misappreciated the Companies Act and proceeded on the incorrect basis that the Act did not provide exclusive remedies; in particular the Munsif proceeded as if there were no provision under the Act permitting a company to seek declaration and injunction against a director who continues to hold himself out as a director despite contravention of section 299(1).
  • The company, being a separate legal entity, acts through the board; an individual director cannot bind the company unless specifically empowered, and unauthorized acts by a director do not bind the company—therefore a separate civil action for declaration and injunction was unnecessary.
  • Where the Act creates a liability and provides a special remedy, that remedy must be followed (citing Munilal v. Balwant and related authorities).
  • Specific statutory provisions cited included section 290(1) (duty to disclose interest), section 299(4) (punishment for failure to disclose), section 283 (office of director becomes vacant on contravention of section 299), section 284 (removal of directors), section 2(11) (definition of "court" under the Act) and section 10 (which specifies courts having jurisdiction under the Companies Act). He also referred to the relevant notification showing omission of section 299 from the matters empowered to be tried by district courts under notification.

Opposite Party's Arguments

  • The learned advocate for the opposite party submitted that for the acts alleged against the petitioner there is a remedy under the Companies Act and that, having regard to that, the civil court (the Munsif's court) is competent to entertain the suit.
  • The opposite party's counsel relied on authorities including A.I.R. 1972 Calcutta 19 and A.I.R. 1963 S.C. 436 (as stated in the opinion).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
A.I.R. (1969) S.C. 78 (Dhulabhai etc. Appellant v. State of Madhya Pradesh and another) Principles about exclusion of civil court jurisdiction where statute gives finality to orders of special tribunals; adequacy of statutory remedies; exceptions where statutory provisions not complied with or tribunal has not acted in conformity with fundamental principles of judicial procedure; and relevance of examining the scheme of the Act where there is an express bar. The petitioner relied on these principles to support the contention that matters under the Companies Act should be adjudicated only by the courts designated under the Act. The court treated these principles as supportive of the view that the Companies Act provides the relevant scheme for exclusive jurisdiction in company matters.
Munilal v. Balwant, A.I.R. (1965) Punjab 24 Where a statute creates a liability not existing at general law and provides a special and particular remedy for enforcing it, that statutory remedy must be followed and the party cannot proceed by action at general law. Quoted by the petitioner to argue that remedies under the Companies Act must be exhausted and that a civil suit for declaration/injunction was not the correct route. The court viewed this authority as supporting exclusion of ordinary civil remedies in favour of statutory remedies.
A.I.R. 1966 Madhya Pradesh 286 Courts nominated under the Companies Act have exclusive jurisdiction over matters covered by the Act and this by necessary implication excludes jurisdiction of other courts; inquiry focuses on whether the Act contains an "otherwise" provision excluding other courts' jurisdiction. Relied upon by the petitioner; the court accepted the relevance of this reasoning in concluding that jurisdiction was with the courts specified in section 10 of the Companies Act.
The Premier Automobile Ltd. v. Kamalkar Santaram Wadke, A.I.R. (1975) S.C. 2238 Principle distinguishing jurisdictional fora: where a dispute is not within a special regime (here industrial disputes) or does not relate to enforcement of a right under the statute, remedy lies in civil court; conversely, where enforcement of a right created under the statute is involved, the remedy lies under the statute. Referred to by the petitioner to illustrate that where statutory rights/obligations are to be enforced, the proper remedy is under the statute. The court observed that this authority did not lay down a contrary view to its conclusion.
A.I.R. 1972 Calcutta 19 (As cited by the opposite party) — specific proposition not detailed in the provided opinion text. Mentioned by counsel for the opposite party; the court noted that this authority did not lay down a view contrary to the court's conclusion in the present case.
A.I.R. 1963 S.C. 436 (As cited by the opposite party) — specific proposition not detailed in the provided opinion text. Mentioned by counsel for the opposite party; the court noted that this authority did not lay down a view contrary to the court's conclusion in the present case.

Court's Reasoning and Analysis

The judge examined the plaint, the statutory provisions invoked by the petitioner and cited by the parties, and the authorities relied upon. The analysis proceeded on the following lines (as recited in the opinion):

  • The acts alleged against the petitioner (contravention of section 299 and related matters) are matters arising under the Companies Act, 1956. The court considered relevant statutory provisions including section 290(1) (duty of disclosure), section 299(4) (penalty), section 283 (office of director becomes vacant upon contravention), and section 284 (removal of directors).
  • The court reviewed the definition of "court" under section 2(11) of the Companies Act and section 10 which specifies which courts have jurisdiction in company matters; it also noted the notification by which certain district courts are empowered in respect of some matters, and that section 299 has been omitted from that empowerment.
  • The court accepted the petitioner's position, supported by authorities, that where a statute creates specific rights/ liabilities and provides remedies or specifies tribunals/courts for enforcement, those statutory remedies and fora are to be treated as the appropriate channel for adjudication; this has the effect of excluding ordinary civil court jurisdiction in matters properly within the Companies Act.
  • The court expressly disagreed with the opposite party's advocate and concluded that the declarations and injunctions sought in the plaint were unnecessary because the companies statutory scheme already addressed the consequences of contravention (for example, vacancy of office under section 283 and criminal/penal consequences under section 299), and that the plaint therefore raised matters which fall within the exclusive purview of courts specified in section 10 of the Companies Act.
  • On that basis, the learned Munsif's order of 26 March 1974 (which declined to accept the jurisdictional challenge) was considered erroneous: the Munsif had no jurisdiction to entertain the suit as framed.

Holding and Implications

Core Ruling: THE ORDER OF THE LEARNED MUNSIF DATED 26TH MARCH 1974 IS SET ASIDE; THE LEARNED MUNSIF HAS NO JURISDICTION TO ENTERTAIN THE SUIT.

Consequent directions and immediate effects:

  • The rule nisi is made absolute and the Munsif's order of 26 March 1974 rejecting the petitioner's jurisdictional challenge is set aside.
  • The plaint is to be returned to the plaintiff's legal practitioner for presentation to the proper court if the plaintiff is so advised (i.e., the court(s) having jurisdiction under section 10 of the Companies Act).
  • There will be no order as to costs.

Broader implications: The opinion confines itself to the direct question of jurisdiction in this matter and does not purport to lay down a novel general principle beyond applying established authorities and the statutory scheme; it therefore effects a procedural disposition in the particular case by directing presentation of the plaint to the proper forum under the Companies Act.

Show full summary ...

    Hirendra Bhadra v. Titwn Eng Co P Ltd

    N.C.Mukherji, J.:-

    (1) This application is directed against order 8 dated 26th of march, 1974 passed by shri p. Jethwani, munsif, first court, durgapur, in title suit no. 2 of 1974 rejecting the application of the defendant petitioner dated february 18, 1974 challenging the inherent jurisdiction of the said court to try the suit. Facts of the case may briefly be stated as follows : - on january 4, 1074, the opposite party filed a title suit no. 2 of 1974 in the court of the munsif, durgapur against the petitioner on the allegation that keeping in dark the opposite party and/or its other directors, the petitioner though a permanent director of the opposite party company carried on business of supply of spare parts and other materials in violation, of section 299 of the companies act, 1956, and by reason thereof the petitioner became disqualified to hold the office of the director of the opposite party company. It was alleged that on december 3. 1973 shri p. K. Basu, another director of the opposite party company, learnt the said fact. It was further alleged that the nineteenth meeting of the board of directors of the company was held on december 28, 1973 at the registered office of the company at durgapur and the petitioner came to attend the said meeting, duly accepted the fee of rs. 50/ - for attending the said meeting and signed the relevant vouchers. It was further alleged that in the said meeting a resolution was passed, inter alia, resolving that the petitioner has or must be deemed to have vacated the office of the director of the opposite party company with effect from at least january 29, 1972 under section 283 of the companies act, 1956 read with clause 42 of the opposite party company's articles of association for contravention of the provisions of section 299 of the companies act. In the suit it was prayed that a decree be passed declaring (1) that the resolution dated december 28, 1973, passed by the board of directors of the plaintiff company is valid, operative and binding on the defendant; (2) that the defendant has vacated or must be deemed to have vacated the office of the director of the plaintiff company with effect from january 29, 1972, or from such earlier date as will be found from the evidence to be the date when the defendant has contravened the provisions of section 299 of the companies act, 1956 and (3) that the defendant has no manner of right, title and interest to act as director of the plaintiff company and/or to interfere and intermeddle with the affairs of the plaintiff company. Another prayer was made to the effect that a decree for perpetual injunction be passed restraining the defendant from acting or attempting to acts as director of the plaintiff company and from interfering intermeddling with the plaintiff company's affairs. Long after the institution of the suit the petitioner came to know about the filing of such a suit against him, appeared in the suit and filed an application challenging the jurisdiction of the court. It was submitted chat the plaintiff has based its right and/or claim the suit under the provisions of the companies act, 1956. The company and its directors being creature of the said companies act, the plaintiff was not entitled to any relief in the suit on the basis of any common law right. The learned munsif after hearing both the parties dismissed the application holding that he had jurisdiction to entertain the suit. Being aggrieved by the aforesaid order the defendant has come up in this court.

    (2) Mr. Tapas chandra ray, learned advocate appearing on behalf of the petitioner, submits that the learned munsif acted illegally and in excess of jurisdiction by rejecting the petitioner's application. It is contended that the learned munsif failed' to appreciate properly the true import of the suit of the opposite party and acted with material irregularity by proceeding on the basis that the plaintiff in the suit did not seek to enforce any of the special rights created by the companies act. Mr. Ray argues with much force that the learned munsif failed to appreciate properly the true scope and import of the various provisions of the companies act, 1956, and acted with material irregularity by proceeding on the basis that there is no provision in the companies act whereby a company whose director had acted in contravention of section 229 (1) but continues to hold himself out as a director can seek the relief of declaration and injunction before the company court as defined in section 10 of the act. In this connection, mr. Ray further submits that the company is a legal entity distinct and separate from the office of a director and the affairs of a company are carried out by the board of directors acting collectively and a single director cannot act for and on behalf of the company unless specifically empowered by the board of directors and any un authorised act of a director does not bind the company. In the scheme of the act provision for declaration and permanent injunction against a director on the ground of breach of section 299 (i) of the companies act was wholly unnecessary. Mr. Ray further contends that the learned munsif ought to have appreciated that whatever remedy and/ or steps necessary in case of breach of section 299 (i) of the companies act, 1956 have been provided fully and adequately in sections 299 and 203 of the said act.

    (3) Mr. Ray first of all refers to section 290 (1) of the act which reads as follows : -

    "every director of a company who is in any way whether directly or indirectly, concerned or interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the board of directors"
    .

    (4) Sub - section (4) of section 299 provides that "every director who fails to comply with sub - section (1) or) 2) shall be punishable with fine which may extend to five thousand rupees. Mr. Ray next refers to section 283 of the act which provides "the office of a director shall become vacant if amongst other acts mentioned in other clauses he acts in contravention of section 299". Section 284 is the provision for removal of directors. Mr. Ray contends that if really there was any violation of the provisions of the companies act by the petitioner, the plaintiff could very well have taken recourse to the provision of the companies act itself. In the facts and circumstances of the case a suit for declaration and permanent injunction is entirely misconceived. If already there has been a resolution of the company dated december 28, 1978, and it' that is a valid resolution; it must be binding on the petitioner. It is not understood why the plaintiff rushed to the civil court for a declaration that mica a resolution is binding or the petitioner. Next, the plaintiff wanted a declaration that the defendant has vacated or must be deemed to have vacated the office of the director of the company with effect from january 29, 1972, that is exactly the resolution of december 28, 1973. By the said resolution it must be deemed that the defendant has vacated the office of the director of the company. It is again not understood what was the necessity for the plaintiff to get a declaration from a civil court that a resolution passed by the company is binding on the defendant and that on the basis of the said resolution it should be held that the defendant had vacated the office of the director. The third declaration sought for was that the defendant had no manner or right, title and interest to act as director of the comply. If there was such a resolution and if there was a contravention of section 299 the office of the director has automatically been vacated by process of law. To support his contention mr. Ray first refers to a decision reported in a. I. R. (1969) s. C. 78 (dhulabhai etc. Appellant v. State of madhya pradesh end another). In this case some principles regarding exclusion of jurisdiction of civil court have been laid down,. Erne of which are as follows : -

    (i) "where the statute gives the finality to the orders of special tribunals the civil court's jurisdiction must be held to be excluded if there is adequate remedy to do what the civil court would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular act were not complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure.

    (ii) where there is an express bar of the jurisdiction of the court, an examination of the scheme of a particular act to find adequacy or sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court".

    Mr. Ray next refers to section 2 (11) of the companies act which reads as follows :

    "the court means (a) with respect of any matter relating to a company (other than any offence against this act) , the court having jurisdiction under this 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 office"
    .

    Mr. Ray also refers to section 10 of the act which lays down as to which are the courts which have jurisdiction under the companies act. From section 10 it is seen that mainly the high court has jurisdiction with regard to the matters under the companies act. In certain cases the district court may have jurisdiction and the central government by notification may empower any district court to exercise all or any of the jurisdiction with regard to certain matters. Mr. Ray also refers to the relevant notification and from that we find that only with regard to certain sections, the district courts hare been empowered but section 299 has been omitted.

    (5) Mr. Ray next refer to a decision reported in (munilal v. Balwant a. I. R. (1965) punjab 24). In this case it has been held "where a liability not existing in a general law is created by a statute which at the same time gives a special and particular remedy for' enforcing it, remedy provided by the: statute must be followed and it is not competent to the party to proceed by action at general law". The next case referred to by mr. Ray has been reported in a. I. R. 1966 madhya pradesh 286. It has been held "the courts nominated under the companies act have exclusive jurisdiction to take cognizance in the matters covered by the companies act, and by necessary implication excludes 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 enquiry 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: courts in matters falling under the companies act".

    (6) The last case referred to by mr. Ray has been reported in (the premier automobile ltd. V. Kamalkar santaram wadke a. I. R. (1975) sc. 2238). In this case their lordships had to consider the jurisdiction of civil court in relation to industrial dispute. Their lordships held "that if the dispute is not an industrial dispute, nor does it relate to enforcement of any other right under the act, the remedy lies only in the civil court". It was further held that "if the industrial dispute relates to the enforcement of a right or an obligation created under the act then the only remedy available to the suitor is to get an adjudication under the act".

    (7) The learned advocate appearing on behalf of the opposite party submits that for the alleged acts done by the petitioner there is to remedy under the companies act and that being so, it must be held that the civil court is quite competent to enter in the suit. Provisions of the companies act have already been referred to and the nature of the acts alleged to have been committed by the petitioner have already been mentioned. I disagree with the learned advocate for the opposite party and hold that for the acts alleged to have been committed there was absolutely no necessity for seeking the declarations as has been sought for by the plaintiff and the matters which have been alleged against the petitioner are all matters under the companies act and that being so, it is only the court which has been mentioned in section 10 of the act that has jurisdiction ho entertain any suit. The cases referred to by the learned advocate for the opposite party, namely, a. I. R. 1972 calcutta 19 and a. I. R. 1963 s. C. 436 do not lay down any contrary view.

    (8) For the reasons stated above this application succeeds and the rule is made absolute. The order passed by the learned munsif on 26th of march 1974 is set aside. It is held that the learned munsif has no jurisdiction to entertain the suit. In the circumstance let the plaint be returned to the learned lawyer for the plaintiff for presentation of the same to the proper court if he is so advised. There will be to order as to costs. Rule made absolute.

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    Comments

    Hirendra Bhadra v. Titwn Eng Co P Ltd
    (Dec 23, 1975)