Calcutta High Court (Appellete Side)
Sharmila Shetty vs Somnath Chatterjee And Anr on 8 May, 2015
Author: Nishita Mhatre
Bench: Nishita Mhatre
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
APPELLATE SIDE
PRESENT:
The Hon'ble Justice Nishita Mhatre
And
The Hon'ble Justice R. K. Bag
F.M.A. No. 760 of 2015
With
C.A.N. 11602 of 2014
Sharmila Shetty
... Appellant
vs.
Somnath Chatterjee and Anr
... Respondents
For the appellant :Mr. Jishnu Saha
Mr. Sakya Sen
Ms. Sudeshna Bagchi
Mr. Subhojit Roy
Mr. Ayan Chakraborty
For the respondent No.1 :Mr. D. N. Sharma
Mr. Kumarjit Banerjee
Mr. Ratnesh Rai
Mr. Arunoy Basu
For the respondent No.2 :Mr. Ajoy Chatterjee
Mr. Aniruddha Ray
Mr. S. Ghose
Heard on : 24.03.2015
Judgment on : 08.05.2015
Nishita Mhatre, J.:
1. The short question involved in the present appeal is whether the suit filed by the appellant for a declaration that the recording of the name of the Respondent No.1 as the holder of 2,42,430 shares in the books and registers of the Respondent No.2 company is illegal, fraudulent, null and void is maintainable before the City Civil Court, Calcutta. The City Civil Court was of the view that such a suit seeking the aforesaid declaration besides several other reliefs including that of a permanent injunction is not maintainable before the City Civil Court, Calcutta. The Court has held that it had no jurisdiction to try such a suit in view of the provisions of the City Civil Court Act, 1953 and the rules framed thereunder.
2. Hemendra Prasad Barooah was the Chairman and Managing Director of the Respondent No.2 company till he expired. The appellant, his youngest daughter, holds 38% of the paid up capital of the Respondent No.2 company and claims to be the single largest shareholder. After the appellant's father's death, she found from a declaration made by the company that 2,42,430 shares originally standing in the name of her father were transferred to the name of Respondent No.1. The appellant claims that the shares were never transferred by her father during his life time and that they were standing in her father's name till he expired on 31st July, 2013. According to the appellant, the Respondent No.1 was an employee of the company and had unduly influenced the decisions of her father who was ailing prior to his death. The appellant claims that her father could never have named the Respondent No.1 as his nominee for the shares held by him. Therefore, the transfer of shares to the name of Respondent No.1 after her father's death was illegal. The appellant therefore filed the present suit being T.S. No.306 of 2014 for the following reliefs:
(a) Declaration that the recording of name of the Defendant No.1 as holder of the 242430 shares in the books and registers of the Defendant No.2 is illegal, fraudulent, null and void;
(b) Mandatory injunction directing the Defendant No.2 to reverse every entry in its books and registers by which the Defendant No.1 has shown himself as the holder of the 242430 shares;
(c) Decree for perpetual injunction restraining the Defendant No.1 from exercising any ownership right in respect of the said shares in any manner whatsoever:
(d) Decree for perpetual injunction restraining the Defendant No.1 from exercising any voting right in respect of the said shares in any manner whatsoever;
(e) Declaration that the purported nomination of the Defendant No.1 in respect of 242430 shares standing in the name of Hemendra Prasad Barooah is null and void;
(f) Declaration that the purported transmission in respect of the shares being No.242430 in favour of the defendant No.1 is illegal and null and void:
(g) Receiver;
(h) Injunction;
(i) Costs:
(j) Further or other orders.
3. She also filed an application under Order XXXIX Rules 1 and 2 for an interim injunction.
4. On 11th March 2014 the City Civil Court granted an ad interim order restraining the Respondent No.1 from dealing with, transferring, alienating, encumbering or creating third party right or interest or exercising any right including voting right in respect of the disputed shares being 2,42,430 in number.
5. An application was filed by Respondent No.1 under Order XXXIX Rule 4 read with Section 151 of the CPC for vacating the ad interim injunction.
6. After hearing both parties the City Civil Court concluded that it had no jurisdiction to determine the disputes raised in the suit. The Court was of the view that the actual reliefs claimed in the suit were not only against the Respondent No.1 but against the Respondent No.2 also. The suit was "regarding companies matter" and therefore, the City Civil Court had no jurisdiction to entertain the suit. The plaint was therefore returned for being presented before the proper forum. Although the trial Court noted the contentions raised by the respondents regarding its lack of pecuniary and territorial jurisdiction, it did not draw any conclusion on these aspects.
7. Aggrieved by the decision of the City Civil Court, the appellant has preferred the present appeal. The Respondent Nos.1 and 2 have not filed separate affidavits in opposition to the application filed for interim relief in the present appeal. They have relied on their affidavits filed before the City Civil Court. The prayers in the present application are for staying the order passed by the City Civil Court and for the following reliefs:
Pass an interim order of injunction restraining the Respondent No.1 from exercising any right of ownership including exercising any right of voting in respect of the said 242430 nos. of shares which was standing in the name of Hemendra Prasad Barooah in the Respondent No.2, namely B & A Limited and the Respondent No.1, be further restrained from selling, dealing with, transferring, alienating, encumbering or creating third party right or interest or exercising any right including voting right over and in respect of the shares in the company, namely B & A Limited until disposal of the appeal and to issue show cause notice upon the respondents as to why the order of injunction should not be made absolute and upon perusing the cause, if any, Your Honour may be graciously pleased to make the order of injunction as absolute;
And Pass an interim order of injunction restraining the Respondent No.1 from receiving any benefit whatsoever including dividend in respect of 242430 shares till the disposal of the instant appeal;
And Pending issuance of notice an order of injunction be passed restraining the Respondent No.1 from dealing with, alienating, encumbering or creating any third party right or interest or exercising any right including voting right in respect of the said shares till disposal of the said appeal:
8. The main contention raised on behalf of the appellant is that the City Civil Court erroneously held that it has no jurisdiction to entertain the suit. Mr. Jishnu Saha, the learned Counsel for the appellant, has drawn our attention to the cause of action as detailed in the plaint. He pointed out that the appellant was not seeking any directions in respect of the management of the company, but has sought a declaration regarding the title of the shares. He submitted that it is only the civil Court which can grant such a declaration of the title of the shares of a company. According to him, neither the Company Court nor the Company Law Board would be in a position to declare the ownership of those shares. The learned Counsel then pointed out that no prayer has been sought with respect to the management and control of the company; therefore the finding of the City Civil Court that it had no jurisdiction was incorrect. The learned Counsel submitted that the appellant merely sought to establish her claim to the extent of 1/3rd with respect to 2,42,430 shares held by her father till his death. According to the learned Counsel the nomination made purportedly in favour of the Respondent No.1 was under undue influence and by fraud. In these circumstances the appellant sought the cancellation of such a nomination as it is vitiated by fraud. The learned Counsel also submitted that the issue involved in the suit is a pure question of title to the movable property being 2,42,430 shares admittedly held by the appellant's father till his death. The learned Counsel further submitted that the challenge raised by the appellant in the suit regarding the title of the disputed shares could not have been made unless consequential reliefs were prayed for against the company. These reliefs are essentially ministerial acts which the company would have to perform if the Respondent No.1 was not entitled to the shares. Mr. Saha submitted that merely because company was arrayed as one of the defendants, it would not mean that the suit was for management or administration of the company.
9. The learned Counsel for the company, Mr. Ajay Chatterjee, submitted that the substance of the plaint relates to who would wrest control over the company after the death of Hemant Prasad Barooah. According to the learned Counsel clever drafting should not cloud the vision and lead to an erroneous decision. He has supported the order of the City Civil Court by submitting that the transfer of shares to the name of Respondent No.1 and the fall out because of such a transfer cannot be segregated. He urged that any transfer of shares of a company would amount to delving into the affairs of a company. It would affect the control of the internal management of the company. This, according to the learned Counsel, amply indicated that the design of the appellant was to wrest control of the management of the company under the guise of filing of a title suit to dispute the title of the shares held by Respondent No.1 absolutely, as the nominee of her late father. It could not be said to be a mere ministerial act which the company was required to perform as suggested by Mr. Saha. The learned Counsel therefore submitted that the Trial Court had correctly concluded that it had no jurisdiction in view of the provisions of the City Civil Court Act, 1953. The learned Counsel further submitted that the City Civil Court had no territorial jurisdiction at all in view of the fact that neither the plaintiff nor the Defendant No.1 were residents of Kolkata nor was the registered office of the company based in Kolkata. He submitted that the shares which were held by the appellant's father were held in Jorhat, Assam. Therefore, the City Civil Court had no territorial jurisdiction.
10. The learned Counsel appearing for the Respondent No.1 supported the submissions of Mr. Chatterjee. He submitted that the Respondent No.1 was a whole time Director from the year 2007 and the Managing Director of the Respondent No. 2 company from 2010. He pointed out that Hemendra Prasad Barooah had expired on 31st July, 2013 and the suit had been filed only in the year 2014. The learned Counsel mentioned that several other litigations are pending in various Courts in respect of these shares and the appellant has challenged the control exercised by the Respondent No.1 in respect of the company before various fora, including the Company Law Board. Therefore, urged the learned Counsel the City Civil Court had assessed the issue correctly and had concluded that it had no jurisdiction to try the suit.
11. The learned Counsel for the parties have referred to several judgments which we will presently advert to. The first issue that we will deal with is whether the City Civil Court has jurisdiction to entertain the suit, considering its cause of action. It would be appropriate to refer to the relevant provisions of Section 5 of the City Civil Court Act, 1953 which deals with the jurisdiction of the Court. They read as under:
5. Jurisdiction - (1) The local limits of the jurisdiction of the City Civil Court shall be the City of Calcutta.
(2) ...
(3) ...
(4) The City Civil Court shall not have jurisdiction to try suits and proceedings of the description specified in the First Schedule.
(5) ...
12. Thus, there is a specific ban under Section 5(4) of the City Civil Court Act, 1953 for the City Civil Court to try suits mentioned in the First Schedule. Such suits include those triable by the High Court as a Court of Admiralty or Vic-Admiralty, or as a Colonial Court of Admiralty. An embargo is also placed on suits mentioned in Entry 10 of the First Schedule which reads as under:
10. Suits and proceedings ;
(i) under the Indian Companies Act, 1913 (VII of 1913), or the Banking Companies Act, 1949 (X of 1949), or
(ii) relating to or arising out of the constitution, incorporation, management or winding up of corporations.
13. There can be no dispute that the present company was incorporated under the Indian Companies Act, 1913. The declaration sought by the appellant is as regards the title of the 2,42,430 shares. Such a declaration would no doubt be granted only by a Civil Court and not by the Company Court or indeed the Company Law Board. Indisputably shares are property and therefore a person who seeks a declaration regarding the title to a property would have to invoke the jurisdiction of a civil Court.
14. The issue now is whether the suit as framed deals with the constitution, incorporation, management or winding up of a corporation as defined under the Indian Companies Act, 1913. If we conclude that it does, the findings of the City Civil Court that it had no jurisdiction would be correct. From a perusal of the plaint it is apparent that the pleadings do not have any bearing on the incorporation of the company; nor is there a prayer for its winding up. Thus the suit does not relate to either the incorporation or the winding up of the company. We will now have to consider whether the suit is in connection with either the constitution or management of the company for the jurisdiction of the City Civil Court to be ousted.
15. As mentioned earlier the pleadings in the suit indicate that the plaintiff, one of the three children of the deceased Hemendra Prasad Barooah, has claimed 1/3rd of the equity shares standing in the name of her deceased father. Undeniably, there were 2,42,430 equity shares in the name of Hemendra Prasad Barooah when he died. It appears that Respondent No.1 was named in the share certificates as the nominee of Hemendra Prasad Barooah. Whether this nomination was under undue influence or coercion or by way of fraud is not necessary for us to be deal with at this stage. What is material is that the plaintiff is claiming title to these shares. The consequential prayers sought are that the company should be directed to perform the ministerial acts of changing the name of the holder of the aforesaid shares in the event the appellant's claim of ownership of the shares succeeds. In our opinion these prayers cannot be said to touch the management of the company. Mr. Chatterjee, the learned Counsel for Respondent No.2 seems to suggest that the moment the word "company" is used in the pleadings in the plaint or a direction is sought against a company, the City Civil Court will not have jurisdiction to entertain the suit. The learned Counsel has placed reliance on the judgment of the learned single Judge of this Court in the case of The Mining, Geological & Metallurgical Institute of India & Ors. v. Shyamalesh Nath Bhaduri & Ors. reported in 1978 CHN 669 and the judgment of the Division Bench in the case of Dilip Chand Kankaria v. Pradip Kumar Ghosh & Ors. reported in (2004) 3 Calcutta Law Times 233 to buttress his argument that the City Civil Court has no jurisdiction as the prayers sought affected the management of the company.
16. In the case of Mining, Geological & Metallurgical Institute of India (supra) the learned Single Judge observed that the expression 'management' in Item No.10(ii) of Schedule 1 of the City Civil Court Act has reference to its organisational set up and includes acts, relating to such matters regarding calling of meetings of the Board, observance of rules regarding quorum, disposal of business at the Board's meetings, preparation of statement of accounts and balance sheet, etc. The learned Judge further observed that the management means the conduct of a business, i.e., control or direction. The Court further held that the City Civil Court would have no jurisdiction to try the suits in which directly or indirectly the organisational set up is in dispute. A suit relating to the internal affairs of a company could not be entertained by the City Civil Court. The plaintiff in the aforesaid case had challenged directly or indirectly the reconstitution of the council which managed the Mining, Geological & Metallurgical institute. This obviously affected the management or control of the institute and therefore the learned single Judge concluded that the City Civil Court would have no jurisdiction to entertain such a suit. In the instant case, the plaintiff has not in any manner questioned the control exercised by the Defendant No.1 on the company. All that she has sought is that she should be allotted her 1/3rd right in the shares held by her late father. She has claimed title to his shares. Therefore, such a suit cannot be said to touch the "management" of the company as envisaged in the City Civil Court Act, 1953.
17. In the case of Dilip Chand Kankaria (supra) the suit was instituted for a declaration and other reliefs regarding mismanagement of the affairs of the company. The Court held that in view of the fact that the suit relates to matters which arise out of management of a corporation, the City Civil Court would have no jurisdiction to try the suit. As we have already noticed the prayers in the suit or the application filed for an injunction do not disclose that the appellant has sought any orders from the City Civil Court in relation to the mismanagement of the company, if any, or its constitution.
18. Another judgment cited by the learned Counsel for the respondents is in the case of Harsha Nitin Kokate v. Saraswat Co-operative Bank Ltd. & Ors. reported in (2010) 159 Company Case 221 in which a learned single Judge of the Bombay High Court held that the intention of nomination is to vest the property in the shares which includes the ownership rights in the nominee if the nomination is validly made. This judgment in our opinion is not relevant for the purpose of deciding the issue with respect to the jurisdiction of the City Civil Court. In any event this judgment has been found to be per incuriam in the case of Jayanand Jayant Salgaonkar v. Jayashree Jayant Salgaonkar & ors. decided on 31st March 2015 in Notice Of Motion No. 822 Of 2014 In Suit No. 503 Of 2014.
19. In the case of Sangramsinh P. Gaekwad & Ors. v. Shantadevi P. Gaekwad reported in (2005) 11 SCC 314 the Supreme Court has observed that a dispute regarding the right of inheritance between the parties is eminently a civil dispute and cannot be said to be a dispute regarding oppression of minority shareholders by the majority shareholders and/or mismanagement. The Court held that a pure question of title is alien to an application under Section 397 of the Companies Act where the lack of probity is the only test. The Court referred to its earlier judgment in the case of Dwarka Prasad Agarwal v. Ramesh Chander Agarwal reported in (2003) 6 SCC 220 where it had held that the jurisdiction of a civil Court cannot be ousted by the Companies Act, 1956. In the present case, Mr. Chatterjee, learned Counsel for the company, submitted that the appellant ought to have filed proceedings under Section 397 of the Companies Act if indeed she was aggrieved by the Respondent No.1 holding a majority of the shares as a result of them being transferred to his name on the death of her father. The decision in Sangramsinh P. Gaekwad (supra) is a complete answer to this submission of the learned Counsel. We are convinced that the nature of the suit filed by the plaintiff is a title suit and has nothing to do with the management of the company. If in the process of claiming title to the shares held by her father, the appellant/plaintiff becomes the majority shareholder that would not by itself oust the jurisdiction of the City Civil Court on the ground that it touches the management of the corporation.
20. In the case of M/s. Ammonia Supplies Corporation (P) Ltd. V. M/s. Modern Plastic Containers Pvt. Ltd. & Ors. reported in AIR 1998 SC 3153 the Supreme Court considered the power of the Company Court to rectify the register of the members of the company under Section 155 of the Companies Act, 1956. The Court observed that in case any claim is based on some seriously disputed civil rights or title and the Company Court feels that such claim does not constitute a rectification but the party is in fact seeking adjudication the Court may send the party first to the civil court for adjudication of his rights. The ministerial act of rectification of the membership register of the company would not, in our opinion, fall within the purview of the term the management of a corporation much less its constitution.
21. Mr. Chatterjee, the learned Counsel for the respondent No.2, had argued that in order to ascertain the nature of the cause of action in the suit, the pleadings in the plaint must be read in their entirety and not just prayers. His contention was that the pleadings in the present case leave no room for doubt that the action brought by the appellant was one in respect of mismanagement of the company which would not lie before the City Civil Court. In the case of Kusum Ingots & Alloys Ltd. V. Union of India & Another reported in (2004) 6 SCC 254 the Supreme Court defined cause of action thus:
"6. Cause of action implies a right to sue. The material facts which are imperative for the suitor to allege and prove constitute the cause of action. Cause of action is not defined in any statute. It has, however, been judicially interpreted inter alia to mean that every fact which would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court. Negatively put, it would mean that everything which, if not proved, gives the defendant an immediate right to judgment, would be part of cause of action. Its importance is beyond any doubt. For every action, there has to be a cause of action, if not, the plaint or the writ petition, as the case may be, shall be rejected summarily."
The Court further observed that the entire pleading need not constitute the cause of action as, what is necessary to be proved before the party can obtain a decree is the material facts which expression means the integral facts. This means that if the appellant is to succeed in her suit in the present case there would have to be an allegation that she was entitled to 1/3rd share of her father's property, namely, the shares held by him and she would have to prove this fact in order to establish her title over the disputed shares. Such a suit cannot by any stretch of imagination be one which concerns the management or constitution of the Respondent No.2 company.
22. One of the contentions urged on behalf of the Respondents was that the appellant is in effect seeking a declaration that the company is being mismanaged because the disputed shares have been transferred to the name of Respondent No.1. Therefore the appellant should have sought relief under sections 397 and 398 of the Companies Act, 1956. In the case of Chatterjee Petrochem (I) Pvt. Ltd. V. Haldia Petrochemicals Ltd. & Ors. reported in AIR 2012 SC 2753 the contention of one of the parties before the Supreme Court was that despite a transfer of 155 million shares by one company in favour of another company it did not register the same in the name of that company. The Supreme Court observed that the failure of the West Bengal Industrial Development Corporation and the Government of West Bengal to register 155 million shares transferred to one company could not strictly be said to be a failure on the part of the company. It was a failure of one of the parties to a private arrangement to abide by its commitment. The Court observed that the remedy in such a case was not under Section 397 of the Companies Act. Since the alleged breach of the agreements was in the nature of a breach between the two members of the company and not the company itself, the Court held that there was no occasion for the Company Law Board to make any order under Section 397 or 402 of the Companies Act. The allegation in the plaint is about the private transaction that Hemant Barooah had with Respondent No. 1 to nominate the latter with respect to 2,42,430 shares. This resulted in the alleged deprivation of a private right of the plaintiff to hold those shares. The allegation is against Respondent No.1 of committing a fraud and exercising undue influence and not the company. Therefore this is certainly a civil dispute which is eminently triable in the City Civil Court, Calcutta.
23. Having considered the submissions made at the bar and the judgments referred by the learned Advocates, we are of the view that the suit as framed is merely for a declaration of the title with respect to 2,42,430 shares which were at one point of time held by Hemendra Prasad Barooah. It is true that certain allegations have been made against the Respondent No.1 who is the Managing Director of the company. However, these allegations are made against him not because he is an MD, but because he had allegedly defrauded and induced Hemendra Prasad Barooah to nominate him in respect of the shares held by the latter.
24. The learned Counsel for the respondents argued that the City Civil Court did not have the territorial jurisdiction to entertain the suit. The Trial Court in the present case has set out the arguments made on behalf of the respondents with respect to the territorial jurisdiction in detail. However, it has not drawn any conclusion as to whether it had territorial jurisdiction to entertain the suit. We, therefore, refrain from considering this aspect of the matter as there is no finding on the same from the Trial Court. We are therefore not adverting to the judgments cited at the bar with respect to the territorial jurisdiction of the City Civil Court. A perusal of the impugned order would indicate that the finding of the Trial Court is based only on the embargo put on it under the City Civil Court Act to hear a certain class of cases.
25. Accordingly, we are of the view that the impugned judgement is erroneous. The provisions of Section 5(4) read with Entry 10 of the First Schedule of the City Civil Court Act do not bar the present suit. The appeal is allowed. The decision of the City Civil Court is set aside. The application being CAN No.11602 of 2014 is also disposed of.
26. Urgent certified photocopies of this judgment, if applied for, be given to the learned Advocates for the parties upon compliance of all formalities.
(R. K. Bag, J.) (Nishita Mhatre, J.) Later
On the application made on behalf of the respondent No.1, this order is stayed for a period of three weeks.
(R. K. Bag, J.) (Nishita Mhatre, J.)