Delhi High Court
Dinesh Kumar vs Sinecure Technocity Pvt. Ltd. & Ors on 22 May, 2019
Equivalent citations: AIRONLINE 2019 DEL 2391
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 22nd May, 2019
+ CS(COMM) NO.242/2019
DINESH KUMAR ..... Plaintiff
Through: Mr. Rajiv Tyagi & Mr. Rohit Gupta,
Advs.
Versus
SINECURE TECHNOCITY PVT. LTD. & ORS. ...Defendants
Through: None.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. The plaintiff has instituted this suit for, declaration and permanent
and mandatory injunctions, pleading that (i) the plaintiff is a Director and
shareholder, holding 20% of the issued, subscribed and paid up share
capital of defendant no.1 Sinecure Technocity Pvt. Ltd.; (ii) the defendant
no.1 is in the nature of a quasi partnership between the plaintiff and
defendants no.2 to 6 viz. (a) Krishan Kumar, (b) Ankit Gupta, (c) Nitin
Rekhan, (d) Atul Gupta, and (e) Neeraj Gupta; the defendant no.1 was
incorporated only to acquire six out of twelve apartment blocks at 9, Birla
House, Arya Samaj Road, Karol Bagh, New Delhi vide six sale deeds, all
dated 12th November, 2009, from the erstwhile owner thereof and has no
other business; the other six apartment blocks on the said property are
owned by defendants no.2 and 3; out of the six apartment blocks acquired
by the defendant no. 1, two have been sold and only four blocks remain;
(iii) it has always been the understanding amongst the plaintiff and the
defendants no.2 to 6, that each shareholder / director shall have one
apartment block to his share and in the event of dissolution by sale of the
CS(COMM) No.242/2019 Page 1 of 18
entire business undertaking of the defendant no.1, each shareholder /
director shall receive the return of his contribution in the form of apartment
blocks in proportion to his shareholding in the defendant no.1; from this
perspective, the plaintiff would be entitled to 20% of the entire asset base of
defendant no.1; one of the apartment blocks has been earmarked for the
benefit of the plaintiff; (iv) earlier, the plaintiff, his father and his brother
were the only directors of the defendant no.1; in the year 2010, the
defendants no.2 to 6, being acquaintances of the plaintiff's family,
requested for being inducted as shareholders in the defendant no.1
company; plaintiff's father and plaintiff's brother agreed to resign as
directors of defendant no.1 and to transfer their shareholdings of defendant
no.1 in the name of defendants no.2 to 6 as well as their relatives and
family members; (v) now the entire shareholding of the defendant no.1 is
held by the plaintiff and the defendants no.2 to 6 and their relatives and
family members, as six shareholder groups; (vi) defendant no.2 holds
14.5%, the defendant no.3 owns 15%, defendant no.4 owns 13.5%,
defendant no.5 owns 16% and the defendant no.6 owns 16% of the issued,
subscribed and paid up share capital of the defendant no.1; the remaining
5% of the shareholding is held by family members of defendants no.2 to 6;
(vii) defendants no.2 to 6 have taken loans and advances in the sum of
Rs.3,34,70,000/- as on 31st March, 2011 against the aforesaid property of
the defendant no.1 and which are reflected in the balance sheet of the
defendant no.1; the defendants no.2 to 6 have apparently mortgaged the
entire business undertaking of the defendant no.1 but the use of the huge
advances by the defendant no.1 cannot be deciphered from the financial
accounts of the defendant no.1; thus the entire business undertaking of the
CS(COMM) No.242/2019 Page 2 of 18
defendant no.1 has been put in severe jeopardy by defendants no.2 to 6; the
sale consideration of the two apartment blocks already sold, has also not
been reflected in the books of the defendant no.1 and has been siphoned off
by the defendants no.2 to 4 for their personal benefits; in fact the plaintiff
was party to sale of only one of the apartment blocks and was not even
informed of the sale of the other apartment block; (viii) the defendants no.2
to 4 are siphoning off the funds of the defendant no.1 to cover their
financial losses and are now attempting to dispose of the remaining
apartment blocks also of the defendant no.1 without informing the plaintiff,
who is a Director and shareholder; (ix) Section 180 of the Companies Act,
2013 prohibits the defendants from, by brute majority, selling and disposing
of the undertaking of the defendant no.1 which comprises only of the suit
property; no meeting of the Board of Directors or of General Body of
shareholders has been called to obtain authorisation for sale of the
undertaking of the defendant no.1; the sale by the defendants no.2 to 4 of
the defendant no.1's property is ultra vires and in violation of Sections 179
and 180 of the Companies Act; (x) the defendants no.2 to 4 have committed
grave acts of misappropriation of the business undertaking and the property
of the defendant no.1 and have committed criminal breach of trust qua the
plaintiff and shareholders holding 20% of the total net worth of the
defendant no.1; (xi) it is necessary to restrain the defendants no.2 to 4 from
transferring the properties of the defendant no.1; (xii) the plaintiff is entitled
to declaration that the sale of one of the apartment blocks already effected
in favour of Dandona Infrastructure Pvt. Ltd. is ultra vires.
CS(COMM) No.242/2019 Page 3 of 18
2. The suit is thus filed, for (A) declaration that the defendants no.2 to 6
have no right individually or collectively to sell, transfer, dispose of or
create third party interest in the undertaking of the defendant no.1 i.e.
property No.9, Birla House, Arya Samaj Road, Karol Bagh, New Delhi; (B)
declaration that the registered sale deed dated 8th September, 2017 executed
by defendant no.2, purportedly on behalf of defendant no.1, in favour of
Dandona Infrastructure Pvt. Ltd. is null and void and of no effect; (C)
alternatively, mandatory injunction directing the defendants no.2 to 6 to
deposit entire sale consideration of Rs.2.25 crores received from Dandona
Infrastructure Pvt. Ltd. under the registered sale deed dated 8th September,
2017 along with interest; and, (D) permanent injunction restraining the
defendants no.2 to 6 from creating third party interest in the four remaining
apartment blocks of defendant no.1 at property No.9, Birla House, Arya
Samaj Road, Karol Bagh, New Delhi.
3. The plaintiff valued the suit for the purpose of jurisdiction at Rs.2.25
crores and for the purpose of court fees at Rs.200/-.
4. The Registry raised objection. On insistence of counsel for the
plaintiff, the suit was listed before this Court first on 10th May, 2019,
subject to the said objection. However, on 10th May, 2019, the counsel for
the plaintiff, instead of justifying the separate valuations for purpose of
jurisdiction and court fees, sought time to deposit the requisite court fees
and the suit posted to 22nd May, 2019. The plaintiff has since paid the
requisite court fees.
CS(COMM) No.242/2019 Page 4 of 18
5. I have however enquired from the counsel for the plaintiff, about the
maintainability of the suit and the locus of the plaintiff to file the present
suit, admittedly relating to the properties of the defendant no.1 company
and in which the plaintiff holds 20% of the shareholding. It has been
enquired from the counsel for the plaintiff, whether not the appropriate
remedy of the plaintiff is before the National Company Law Tribunal
(NCLT), under Sections 241 and 242 of the Companies Act, 2013 and
whether not the jurisdiction of this Court to entertain this suit is barred by
Section 430 of the said Act.
6. Though there is yet another defect in the suit viz. of non-
impleadment of Dandona Infrastructure Pvt. Ltd., sale deed in whose favour
by the defendant no.1 is sought to be declared as null and void, but the said
defect is capable of rectification. However, the other grounds aforesaid go
to the root of the matter and are incurable.
7. The counsel for the plaintiff who was quizzed on this aspect even on
10th May, 2019 when the suit had come up first, has come prepared. He has
argued and subsequently also handed over note of arguments (which is
taken on record), contending that (i) under Section 9 of the Code of Civil
Procedure, 1908 (CPC), the Civil Courts have jurisdiction to try all suits of
a civil nature except the suits for which cognizance is expressly or
impliedly barred; thus this Court as a Civil Court would have jurisdiction
unless barred by any law; (ii) on the other hand NCLT has neither
jurisdiction to grant the relief sought nor do the provisions of the
Companies Act, 2013 empower NCLT to decide the issues raised in the
present suit; (iii) Section 430 excludes the jurisdiction of the Civil Court
CS(COMM) No.242/2019 Page 5 of 18
only over matters in respect of which NCLT has been empowered; the
powers of NCLT in relation to adjudication of complaints of oppression and
mismanagement have been set out in Sections 241 to 244; none of the said
provisions cover the situation and the reliefs claimed in the suit; thus the
jurisdiction of this Court as the Civil Court to entertain disputes regarding
immovable properties of the defendant no.1 is not barred; (iv) Section 180
of the Companies Act prohibits the directors from selling the undertaking of
the company without the consent of the shareholders in general meeting; no
such consent has been taken; (v) the Companies Act does not provide for
any mechanism or consequences to deal with the breach by the directors of
the company of the provisions of Section 180 of the Act; (vi) the
Companies Act in Section 450 provides for punishment of such act for
which no specific penalty is provided; (vii) ouster of jurisdiction of Civil
Court is to be strictly construed; (viii) NCLT does not have any jurisdiction
to pass any declaratory or prohibitory order as sought in this suit; (ix)
reliance is placed on Dhulabhai Etc. Vs. State of Madhya Pradesh AIR
1969 SC 78, The Public Trustee Vs. Rajeshwar Tyagi (1972) VIII DLT
252, Rajesh Kumar Vs. Shanta Vashisht 2013 SCC OnLine Del 4063,
Himangni Enterprises Vs. Kamaljeet Singh Ahluwalia (2017) 10 SCC
706, N. Radhakrishnan Vs. Maestro Engineers (2010) 1 SCC 72, Sahara
Fabrics Pvt. Ltd. Vs. Kailash Ramprashad Mehra (2006) 134 Com. Cas.
472, Premwati Vs. Bhagwati Devi 2015 SCC OnLine Del 11563,
Greenline Transit System Pvt. Ltd. Vs. The Secretary-cum-Commissioner
Transport 2012 SCC OnLine Del 6355, Samar Kumar Roy Vs. Jharna
Bera (2017) 9 SCC 591 and Dwarka Prasad Agarwal Vs. Ramesh
Chander Agarwal (2003) 6 SCC 220; (x) the actions of the defendants
CS(COMM) No.242/2019 Page 6 of 18
sought to be restrained have jeopardized the plaintiffs' 20% share in the
defendant no.1 company; and, (xi) the objection as raised cannot be decided
at the threshold and an issue qua the same has to be framed after completion
of pleadings. On enquiry, it is informed that the plaintiff is not in
possession in of the Resolution dated 21st April, 2017 of the defendant no.1
company in pursuance whereto the apartment block was sold in favour of
Dandona Infrastructure Pvt. Ltd.
8. I have considered the aforesaid contentions of the counsel for the
plaintiff.
9. Chapter XVI of the Companies Act titled 'Prevention of Oppression
and Mismanagement', vide Section 241 entitles any member of a company
who complains that the affairs of the company have been or are being
conducted in a manner prejudicial or oppressive to him or prejudicial to the
interests of the company, to apply to the NCLT, provided that such member
has a right to apply under Section 244 of the Act. Section 244 lays down
the qualification of not less than one tenth of the issued share capital of the
company. The plaintiff, claiming to have 20% of the shareholding of the
defendant no.1, the counsel for the plaintiff admits, so qualifies to approach
the NCLT under Section 241 of the Act. Section 242(1) empowers the
NCLT, on such application under Section 241 of the Act, if of the opinion
that the company's affairs have been or are being conducted in a manner
prejudicial or oppressive to any member or prejudicial to the interest of the
company and if finds that winding up of the company would unfairly
prejudice the complaining member but otherwise the facts justify the
making of the winding up order on the ground that it was just and equitable
CS(COMM) No.242/2019 Page 7 of 18
that the company should be wound up, to, with a view to bring to an end the
matters complained of, make such order as it thinks fit. Sections 242(2) and
242(4) are as under:
" 242. Powers of Tribunal. - (1) ...
(2) Without prejudice to the generality of the powers
under sub-section (1), an order under that sub-section may
provide for--
(a) the regulation of conduct of affairs of the
company in future;
(b) the purchase of shares or interests of any
members of the company by other members
thereof or by the company;
(c) in the case of a purchase of its shares by the
company as aforesaid, the consequent reduction
of its share capital;
(d) restrictions on the transfer or allotment of the
shares of the company;
(e) the termination, setting aside or modification, of
any agreement, howsoever arrived at, between
the company and the managing director, any
other director or manager, upon such terms and
CS(COMM) No.242/2019 Page 8 of 18
conditions as may, in the opinion of the Tribunal,
be just and equitable in the circumstances of the
case;
(f) the termination, setting aside or modification of
any agreement between the company and any
person other than those referred to in clause (e):
Provided that no such agreement shall be
terminated, set aside or modified except after due
notice and after obtaining the consent of the party
concerned;
(g) the setting aside of any transfer, delivery of
goods, payment, execution or other act relating to
property made or done by or against the company
within three months before the date of the
application under this section, which would, if
made or done by or against an individual, be
deemed in his insolvency to be a fraudulent
preference;
(h) removal of the managing director, manager
or any of the directors of the company;
(i) recovery of undue gains made by any
managing director, manager or director during
the period of his appointment as such and the
manner of utilisation of the recovery including
CS(COMM) No.242/2019 Page 9 of 18
transfer to Investor Education and Protection
Fund or repayment to identifiable victims;
(j) the manner in which the managing director
or manager of the company may be appointed
subsequent to an order removing the existing
managing director or manager of the company
made under clause (h);
(k) appointment of such number of persons as
directors, who may be required by the Tribunal to
report to the Tribunal on such matters as the
Tribunal may direct;
(l) imposition of costs as may be deemed fit by
the Tribunal;
(m) any other matter for which, in the opinion
of the Tribunal, it is just and equitable that
provision should be made.
(3) ...
(4) The Tribunal may, on the application of any party to the
proceeding, make any interim order which it thinks fit for
regulating the conduct of the company's affairs upon such
terms and conditions as appear to it to be just and equitable."
10. Section 243 of the Act titled 'Consequences of termination or modification of
certain agreements' provides that where the NCLT in exercise of powers
CS(COMM) No.242/2019 Page 10 of 18
under Section 242 of the Act terminates or sets aside the agreement, such
order shall not give rise to any claims whatsoever against the company by
any person for damages or for compensation for loss pursuant to setting
aside of the agreement.
11. Section 430 of the Act, to which also attention of the counsel for the
plaintiff was drawn, is as under:
"430. Civil court not to have jurisdiction. - 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."
12. There can be no dispute, nor has any been urged, that the averments
of the plaintiff in the plaint are of the affairs of the defendant no.1 company
having been and being conducted in a manner prejudicial to the interest of
the plaintiff and the defendant no.1 and oppressive to the plaintiff. The
remedy of approaching the NCLT under Section 241 of the Act is thus
available to the plaintiff.
13. The question for consideration is, whether the NCLT has jurisdiction
to determine, what the plaintiff has approached this Court as the Civil Court
for determination of.
CS(COMM) No.242/2019 Page 11 of 18
14. The plaintiff, besides seeking to restrain the defendants no.2 to 6
from selling the immovable properties, comprising of four apartment blocks
aforesaid, of the defendant no.1, is only seeking setting aside of the sale
deed admittedly executed by defendant no.1 acting through the defendants
no.2 to 4 of one of the apartment blocks to Dandona Infrastructure Pvt. Ltd.
and alternatively deposit by the defendants no.2 to 6 in the account of the
plaintiff of the sale proceeds. Attention of the counsel for the plaintiff has
been drawn to Section 242(2)(f) supra of the Act, which empowers the
NCLT to terminate, set aside or modify any agreement between the
company and any person other than those referred to in Section 242(2)(e) of
the Act. The same, in my view, empowers the NCLT to grant the relief as
sought by the plaintiff, of setting aside of the sale deed in favour of
Dandona Infrastructure Pvt. Ltd.
15. Not only so, Section 242(2)(m), being the residuary power and which
is equivalent to Section 402(g) of the Companies Act, 1956, is very widely
worded and has been widely interpreted in M.S.D.C. Radharamanan Vs.
M.S.D. Chandrasekara Raja (2008) 6 SCC 750, V.S. Krishnan Vs.
Westfort Hi-Tech Hospital Ltd. (2008) 3 SCC 363, Pearson Education
Inc. Vs. Prentice Hall India (P) Ltd. 2005 SCC OnLine Del 945, Debi
Jhora Tea Co. Ltd. Vs. Barendra Krishna Bhowmick 1979 SCC OnLine
Cal 37 (DB) and Bennet Coleman & Co. Vs. Union of India 1973 SCC
OnLine Bom 41 (DB) and would confer such a power on the NCLT.
16. The NCLT, per Section 242(4), is also empowered to grant interim
relief as sought by the plaintiff along with the plaint in this suit also, of
CS(COMM) No.242/2019 Page 12 of 18
restraining the defendants from dealing with the immovable property of the
defendant no.1.
17. Moreover, NCLT and its predecessor Company Law Board (CLB), in
such situation as pleaded by the plaintiff, if finds merit in the claim of the
plaintiff, have much wider powers than the powers of this Court as the Civil
Court. NCLT, in exercise of its powers under Section 442 of the Act, is
empowered to bring about a settlement between the plaintiff and the
defendants no.2 to 6 and other shareholders of the defendant no.1 company,
relating to the affairs of the defendant no.1 and which power cannot be
exercised by the Civil Court. NCLT / CLB are known to often make orders
providing for sale / transfer of shareholdings inter se shareholders and / or
of transfer of immovable properties of the company in favour of a
shareholder in lieu of his shareholding in the company and which, this
Court as the Civil Court, will be able to do. I am thus unable to fathom,
why the plaintiff, instead of choosing the appropriate forum of NCLT, is
choosing this Court, when this Court even if were to be said to have
jurisdiction, is incapable of, save with the consent of the parties, directing a
resolution of the disputes. The Court cannot under its aegis run the affairs
of the company and can only pronounce on a particular transaction, even if
were to have jurisdiction therefor and which will leave the parties to
continue to fight with each other relating to the affairs of the defendant no.1
company.
18. Once it is found that NCLT has jurisdiction, the jurisdiction of the
Civil Court to determine the matter which the NCLT is empowered to
determine would stand excluded under Section 430 of the Act. A co-
CS(COMM) No.242/2019 Page 13 of 18
ordinate bench recently in Sas Hospitality Pvt. Ltd. Vs. Surya
Constructions Pvt. Ltd. 2018 SCC OnLine Del 11909 has also held that, (a)
NCLT is a Tribunal which has been constituted to have exclusive
jurisdiction in the conduct of affairs of companies; (b) it has been vested
with powers to pass such order as it may deem fit, to review and also to
punish for contempt; (c) NCLT is empowered to oversee and supervise the
working of the company and also appoint such persons as may be deemed
necessary to regulate affairs of the company; (d) the powers of NCLT are
wider than that of the Civil Court; and, (e) the bar under Section 430 is
absolute.
19. As far as the judgments cited by the counsel for the plaintiff are
concerned,
(i) Dhulabhai Etc. supra was concerned with a suit instead of a
writ petition under Article 226 of the Constitution of India
impugning the Notifications under the Sales Tax Act on the ground
of the same being violative of Article 301 of the Constitution. The
suits were opposed inter alia on the ground that vide Section 17 of
the Sales Tax Act, the jurisdiction of the Civil Court was barred. It
was held that where a liability to tax is created by the statute which
gives special and particular remedies against illegal exactions, the
remedy contemplated by the statute must be followed and it is not
open to the assessee to pursue the ordinary civil process of courts.
However, the question of ultra vires of the statute, is always open to
the Civil Court.
CS(COMM) No.242/2019 Page 14 of 18
The said judgment is found to have no application. The company is a
creation of a statute and the rights and liabilities of shareholders of a
company are also a creation of a statute and the statute i.e. the
Companies Act having provided the remedy for grievances inter se
shareholders / directors, I see no reason why the said remedy is not
the appropriate remedy especially when care is taken in the statute to
ensure that the Tribunal constituted thereunder is entitled to handle
what, the Civil Court cannot handle. We are here not concerned with
any question of ultra vires of a statute.
(ii) In Rajeshwar Tyagi supra, a shareholder of a company
instituted the civil suit challenging the creation by the company of a
Trust, to which a large number of shares of the company were
transferred and impugning the vires of Section 187B of the
Companies Act. It was in this context held that the CLB, being a
creature of the Companies Act, could not entertain a challenge to the
vires of the statute. The reliance on the said judgment also in this
case, where there is no challenge to the vires of any statute, is
misconceived.
(iii) In Rajesh Kumar supra, the question before me was whether
the suit for recovery of possession of immovable property was with
respect to agriculture land, the jurisdiction with respect whereto was
barred by the Delhi Land Reforms Act, 1954. There was no clarity
on this aspect and in these circumstances, it was held that
determination of the said question also requires evidence. However
CS(COMM) No.242/2019 Page 15 of 18
here, the question is whether on the plea of the plaintiff in the plaint
itself, the jurisdiction of this Court is barred.
(iv) Himangni Enterprises supra was concerned with arbitrability
of a claim of the landlord for eviction of a tenant and also has no
application. In any case, the view taken therein has been doubted in
Vidya Drolia Vs. Durga Trading Corporation 2019 SCC OnLine SC
358 and the matter referred to the larger bench.
(v) N. Radhakrishnan supra is also about arbitrability of a
complicated matter and not concerned with the jurisdiction of the
Civil Court.
(vi) Sahara Fabrics Pvt. Ltd. supra holds a suit for declaration of
respective shareholding in a company and of illegality of the acts of
the purported directors of the company to be maintainable. The
question for consideration was, whether remedy of rectification of
share register under Section 111 of the Companies Act, 1956 was the
appropriate remedy. It was reasoned, that even the CLB when
approached for rectification of share register was empowered to
relegate the parties to the Civil Court and thus the jurisdiction of the
Civil Court could not be said to be barred. Again, the said judgment
is in its own facts and which have no application to the present
controversy. I may in this context also refer to the dicta of the
Supreme Court in Ammonia Supplies Corporation (P) Ltd. Vs.
Modern Plastic Containers Pvt. Ltd. (1998) 7 SCC 105 qua Section
111 of the Companies Act, 1956, also holding to the same effect.
CS(COMM) No.242/2019 Page 16 of 18
(vi) In Premwati supra, the Division Bench of this Court held that
since the dispute raised in the suit was of inheritance of shares in a
private limited company, it was eminently a dispute of a civil nature
and jurisdiction was not barred.
(viii) Greenline Transit System Pvt. Ltd. supra was a suit by one
Joint Signatory of Account of the company against the other, for
injunction restraining deposit of receipts of a contract entered into by
the plaintiff in a new bank account of which the former was not a
signatory. The suit was held to be maintainable. I may highlight that
there were no pleas of oppression and mismanagement.
(ix) Samar Kumar Roy supra was for continuation of a suit for
declaration that the marriage between the plaintiff and defendant was
not legal and valid by the legal heirs of the plaintiff and has no
application to the present controversy.
(x) Dwarka Prasad Agarwal supra was also a suit for eviction
filed by a lessor, also a shareholder in the lessee company, for
eviction of the other member of the company who had dispossessed
him and again, having no application to the present controversy.
20. I may in this context also observe that the question of bar of
jurisdiction of the Civil Court would depend upon the nature of the
averments in the plaint. If the averments in the plaint, though not using the
words mismanagement, prejudicial to interest and oppression, are found to
be amounting thereto and the relief sought are also which fall in the domain
CS(COMM) No.242/2019 Page 17 of 18
of Section 442(2) of the Act, the jurisdiction of the Civil Court would be
barred.
21. I am therefore, on the averments made in the plaint, unable to find
this Court to be having jurisdiction to entertain this suit.
22. The suit is dismissed.
No costs.
RAJIV SAHAI ENDLAW, J.
MAY 22, 2019 'gsr'..
(Corrected and released on 10th July, 2019).
CS(COMM) No.242/2019 Page 18 of 18