Madras High Court
Gemini Communications Limited vs Merrill Lynch International on 11 February, 2014
Author: T. Mathivanan
Bench: T.Mathivanan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 11-02-2014 CORAM THE HON'BLE MR.JUSTICE T.MATHIVANAN Civil Revision Petition (PD) No.4058 of 2013 and M.P.No.1 of 2013 Gemini Communications Limited, Represented by its Authorised Signatory, Having its Registered Office at No.1, Dr.Ranga Road, Alwarpet, Chennai-600 008. .. Petitioner/Defendant vs. Merrill Lynch International, Represented by Ambrish Singh (Authorised Signatory), Having its Registered Office at 2 King Edward Street, London EC1A 1HQ, United Kingdom ..Respondent/plaintiff Revision is preferred under Article 227 of the Constitution of India, against the order dated 19.8.2013 passed by the learned XVII Assistant Judge, Chennai, in I.A.No.3866 of 2013 in O.S.No.7452 of 2012. For Petitioner : Mr.J.Sivanandaraaj For Respondent : Mr.M.S.Krishnan, Senior Counsel for M/s.A.K.Law Chambers. O R D E R
This Memorandum of Civil Revision has been directed against the fair and decretal order dated 19.8.2013 and made in the interlocutory application in I.A.No.3866 of 2013 in O.S.No.7452 of 2012 on the file of the learned XVII Assistant Judge, City Civil Court, Chennai.
2. The revision petitioner herein is the defendant in the suit in O.S.No.7452 of 2012, whereas the respondent is the plaintiff.
3. For easy reference and for the sake of convenience, the respondent herein may hereinafter be referred to as the plaintiff and the revision petitioner be referred to as the defendant wherever the context so require.
4. The plaintiff has filed the above suit in O.S.No.7452 of 2012 as against the defendant, seeking the following reliefs:-
a. To pass a judgment and decree, declaring the Resolution dated 1.11.2012 passed by the Board of Directors of the revision petitioner/defendant, authorising conversion of foreign currency convertible bonds held by the respondent/ plaintiff and allotment of 1,97,46,885/- equity shares at face value of Rs.1/- each in favour of the respondent/plaintiff as null and void, being contrary to the agreement between the parties as well as in law; and b. To issue a permanent injunction against the revision petitioner/defendant from acting in pursuance of the Resolution passed on 1.11.2012.
5. The defendant instead of filing his written statement had taken out an application in I.A.No.3866 of 2013 under Order 7 Rule 11 of C.P.C. to reject the plaint on the ground that the civil court does not have jurisdiction to entertain the suit of this nature as the suit is barred by the provisions of Section 10 of the Companies Act, 1956.
6. This petition was vehemently contested by the plaintiff by filing their counter affidavit and after hearing both sides, the trial Court had dismissed that application on 19.8.2013 on the ground that since the contractual rights of the plaintiff were affected, the civil court is having jurisdiction under Section 9 of C.P.C. to determine the issue which is purely civil in nature.
7. Having been aggrieved by the impugned order, dated 19.8.2013, the defendant has approached this Court with this revision.
8. Heard M/s. J. Sivanandaraaj, learned counsel appearing for the revision petitioner and Mr.M.S.Krishnan, learned Senior Counsel appearing for M/s.A.K. Law Chambers, who is on record for the respondent/plaintiff.
9. The plaintiff is a financial services company registered with the Registrar of Companies for England and Wales at United Kingdom.
10. The defendant is also a company registered under the Indian Companies Act, 1956, engaged in the business of providing infrastructure implementation services, infrastructure managed services, infrastructure outsourcing services and infrastructure consultancy services and LAN, WAN and telecom solutions.
11. In pursuant to the subscription agreement, dated 29.6.2007 entered into between the plaintiff and the defendant, the foreign currency convertible bonds to the tune of E 15,000,000 (Euros Fifteen Million only) were issued to the plaintiff. The said foreign currency convertible bonds (hereinafter be referred to as FCCBs) were convertible into ordinary equity shares at face value of Rs.10 (Rupees Ten only) each as on 17.7.2007 at the option of the plaintiff.
12. The FCCB's are constituted by the Trust Deed, dated 16.7.2007 executed between the defendant and the Bank of New York, London Branch, who was appointed by the defendant as their trustee and approved by the plaintiff.
13. The Schedule 1 to the Trust Deed sets out the terms and conditions of the FCCBs, which sets out the procedure for conversion of FCCB into the shares at the option of the plaintiff.
14. As per the terms and conditions of the Trust Deed, the FCCBs were matured on 18.7.2012 and in terms of Clause 6.1.1 of the Terms and Conditions, the conversion right had to be exercised by the plaintiff by 18.7.2012. However, in case of default in repayment by the defendant, the conversion rights of the plaintiff survives the date of maturity as set out in Clause 6.1.5 of the terms and conditions.
15. The defendant had committed default in payment from the month of January 2010 and continued to breach the provisions of the Subscription Agreement, the Trust Deed, and other relevant FCCB documents thereafter.
16. In and around 2012, at the request made by the representatives of the defendant company, the plaintiff had arrived at a commercial understanding with the defendant to extend the maturity date subject to RBI's approval and subject to the amendment in the Trust Deed and corresponding amendments to the terms and conditions of the agreement and other documents.
17. An application was also made by the defendant to the RBI seeking approval for an extension and in their application, dated 10.7.2012, the defendant had stated that they were liable to make payments under the FCCB documents in an amount equal to 105.1310% of the principal amount.
18. It was the understanding between the plaintiff and the defendant that the plaintiff was not interested in exercising its conversion right under the terms and conditions as the same is financially disadvantage for the plaintiff.
19. However, without prior warning or notice, the defendant had issued a communication, dated 1.11.2012 to the plaintiff stating that their company had on the same date, i.e., on 1.11.2012 allotted 1,97,46, 885 equity shares at face value of Re.1 (One rupee only) each in favour of the plaintiff pertaining to the alleged exercise of conversion right by the plaintiff.
20. According to the plaintiff, the aforesaid action of the defendant is unilateral and without any concurrence or initiation on the part of the plaintiff.
21. Under the terms of the FCCBs, the plaintiff is required to be paid an amount of Euro 18,484, 340 (Euro Eighteen Million Four Hundred Eighty Four Thousand Three Hundred Forty only) by the defendant as on 8.11.2012.
22. By converting FCCBs into shares unilaterally, the defendant had wrongfully avoided the payment of a significant proportion of the aforesaid amount.
23. Hence, the plaintiff after exchange of notices had come forward with the above suit seeking a declaratory decree as afore stated.
24. The defendant had filed an application in I.A.No.3866 of 2013 under Order 7 Rule 11 of C.P.C. to reject the plaint on the following grounds:-
a. The suit is barred by law in view of Section 10 of the Companies Act, 1956 as the trial Court, viz., the learned 17th Assistant Judge, City Civil Court, Chennai, has got no jurisdiction to entertain the suit.
b. The Board Resolutions are matters of internal governance pertaining to the Company and are governed solely by the provisions of the Companies Act and as such, the trial Court, not being either the High Court or the District Court empowered by the Central Government to hear such matters, does not have jurisdiction to hear the present suit as the main relief sought for in the present suit is to declare the Board Resolution as null and void and hence, the present the suit is barred by law.
25. Mr.J. Sivanandaraaj, learned counsel appearing for the defendant, who is the revision petitioner herein has adverted to that the resolution of the Board was a matter pertaining to the internal functioning and management of the company and it was established in law that the civil courts did not have jurisdiction and should never interfere with the management of a company, including Board Resolutions, excepting in the limited circumstance, where such Board Resolution was ultra vires either the Companies Act, 1956 or the Articles of Association of the Company.
26. He has also submitted that in so far as the present suit was concerned, the impugned Board Resolution was, in fact, not ultra vires, either the Companies Act, 1956 or the Articles of Association of the Company.
27. It is significant to note here that the plaintiff has sought the relief of declaration to declare the impugned Board Resolution, dated 1.11.2012 as null and void solely on the ground that the Resolution is in breach of the terms and conditions of the subscription agreement entered into between the parties.
28. Secondly, Mr. J. Sivanandaraaj, has argued that even assuming without admitting that the impugned Board Resolution , dated 1.11.2012 was in violation of the agreement between the parties, this would not create a cause of action to maintain the suit within the jurisdiction of the civil court as the suit was squarely barred by Section 10 of the Companies Act, 1956 as it did not disclose a cause of action to maintain the suit.
29. Thirdly, Mr. J. Sivanandaraj has submitted that it was established law that only a Board of Director of a company or the General Body of the Company alone had the right to challenge the Board Resolution of a Company and since the plaintiff company was a complete third party to the defendant company and was certainly not a director or General Body of the defendant Company, it had no locus standi to maintain the suit before the civil court and consequently, no cause of action had been shown to file the present suit.
30. He has also maintained that there must be a proximal and direct nexus between the relief sought for and the cause of action and since the plaint did not disclose a cause of action, the learned trial Judge ought to have rejected the plaint in view of the provisions under Order 7 Rule 11(a)&(d) of C.P.C. But unfortunately, without considering the above provisions of law, he had dismissed the petition and therefore, he has urged to set aside the impugned order, and the suit in O.S.No.7452 of 2012 on the file of the learned 17th Assistant Judge, City Civil Court, be rejected.
31. On the other hand, Mr.M.S.Krishnan, learned Senior Counsel appearing on behalf of the respondent/plaintiff has argued that since the cognizance of the present suit was neither expressly nor impliedly barred, the civil court should have jurisdiction to try the suit as contemplated under Section 9 of C.P.C. 32. Secondly, he has submitted that it could not be stated that the jurisdiction of the civil court was ousted by the provisions of Section 10 of the Companies Act, 1956.
33. During the course of his arguments, he has made reference to the provisions of Section 2(11) of the Companies Act (hereinafter be referred to as 'the Act') and submitted that the term 'Court' had been defined under sub-section 11 of Section 2 to mean the court as provided under Section 10.
34. He has gone one step further and argued that the powers were conferred not only on 'courts' but also on other authorities, like Company Law Board, the Central Government and the Registrar and that where the power was vested by the Act in a court that court had to be ascertained with reference to Section 10 of the Act.
35. Thirdly, he has contended that in so far as this case was concerned, since the rights of the plaintiff were affected by the unilateral action of the defendant company, the plaintiff, though being a third party, was having every right to maintain the suit for the relief of declaration and on this ground, the civil court's jurisdiction had not been ousted and further the company courts would not have jurisdiction to grant a declaratory relief as prayed for by the plaintiff's company as there was breach of contract by the defendant company.
36. From the arguments advanced by both the learned counsels, it is thus made clear that the provisions of Section 10, 2(11) and Section 111(A) of the Companies Act and Section 9 and sub-clauses (a) & (d) to Rule 11 of Order 7 C.P.C., are very much relevant to be analysed deeply to find out as to whether the civil court has got jurisdiction to entertain the suit of this nature.
37. In order to examine the issue as to whether the relief of declaration can be granted in favour of a third party company to declare that the resolution passed by the defendant's company, dated 1.11.2012 as null and void or whether the Company Law Board alone is having exclusive jurisdiction to adjudicate the dispute between the parties to the suit.
38. In this regard, this Court finds it better to have reference to Section 2(11) and Section 10 of the Act.
39. At the first instance, let us have reference to Clause 11 of Section 2 of the Act.
40. Section 2(11):- The Court means-
a. With respect to 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, the Presidency Magistrate, having jurisdiction to try such offence.
41. As observed in Re, Wool Textile Employers Mutual Ins. Co. Ltd., (1955) 25 Com.Cases 406, 412), there is no Companies Court separate and distinct from the ordinary courts. The phrase is only a convenient way of describing the relevant jurisdiction of the High Court when it is being exercised under the Companies Act. Clause 11 of Section 2 gives a meaning of the word Court wherever it appears in the statute.
42. The jurisdiction of a Companies Court extends only to those matters which are specified in the Act and apart from those matters it has no jurisdiction.
43. For example, as observed in Rajendra Menon (No.2) vs. Cochin Stock Exchange Ltd., (1990) 69 Com Cases 256,257 (Ker), an application to compel a company (Stock Exchange) to comply with the requirement of section 257 is not maintainable before a Companies Court.
44. Section 10 of the Act defines the Jurisdiction of Courts. It enacts as under:-
Section 10. Jurisdiction of Courts (1) The Court having jurisdiction under this Act shall be -
(a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate, to that High Court in pursuance of sub-section(2); and (b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette and subject to such restrictions, limitations and conditions as it thinks fit empower any District Court to exercise all or any of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred - (a) in respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407, both inclusive;
(b) in respect of companies with a paid-up share capital of not less than one lakh of rupees by Part VII (sections 425 to 560) and the other provisions of this Act relating to the winding up of companies. 45. It has to be specifically noted that as contemplated by the Companies (Second Amendment) Act, 2002 (11 of 2003), the Civil Courts have been deprived of their jurisdiction to a very large extent by the Companies (Second Amendment) Act, 2002 in terms of Section 10GB. New Forums, namely National Company Law Tribunal and National Company Law Appellate Tribunal have been formed to take over the complete jurisdiction of the Company Law Board, BIFR and to a very large extent that of the Civil Courts and High Courts. Now only a few points of jurisdiction on company matters will survive with Civil Courts/High Courts. 46. This Court also wishes to place it on record that the experience gained from the Court decisions on matters which now stand transferred to the new Forum (NCLT/NCLAT) and which is reflected by a large number of Court decisions detailed in the commentary on the section will remain a useful accumulation of knowledge on the subject of company law because the decisions of the new Forum may go under the appeal processes upto the Supreme Court and there the same principles will be of great guidance. 47. No doubt, except to the extent to which any jurisdiction expressly conferred on the District Court either by this Act or by the Central Government by Notification, in the official gazette, the residuary jurisdiction under the Act is vested only in the High Courts but it does not mean that the common law remedy, which is available, within the jurisdiction of civil court has been taken away. 48. In Shanita Holdings SDN, BHD, Malaysia and another vs. Shanita Hotel Trichy P. Ltd., and another ((2009) 152 Comp Cas 116 (Mad)), the learned Single Judge of this Court has observed as under:- The exclusion of jurisdiction of the civil court is not to be readily inferred and such exclusion must either be explicitly expressed or clearly implied, in accordance with the principles of statutory interpretation. The presumption is in favour of existence of the jurisdiction rather than exclusion of jurisdiction of the civil courts. 49. In an another case, in M.G. Dishit vs. Reliance Petrochemicals Ltd. (1994) 79 Com.Cases 830 Guj), the learned Single of Gujarat High Court has observed as under:- Section 10 of the Companies Act, which provides that the location of the registered office of the company would determine the territorial jurisdiction of the High Court cannot be construed to mean that the High Court has jurisdiction with respect to all matters relating to that company. 50. It has also been observed that the High Court is a special court or a company court with special company jurisdiction and that jurisdiction has to be found from specific provisions of the Act. The High Court does not have any general plenary or residuary jurisdiction to deal with all matters and all questions arising under the Companies Act. 51. Further, it has been observed that no special remedy is provided under the Companies Act, 1956, for breach of the provisions of section 166 of the Act, which prescribes the time and place for holding annual general meetings of companies. Therefore, the common law remedy within the jurisdiction of the civil court would remain. The High Court, in the absence of a specific provision, has, therefore, no jurisdiction to pass orders in respect of alleged breach of section 166(2) of the Companies Act.
52. It is obvious to note here that as already discussed in the foregoing paragraphs, the defendant had filed the above said application in I.A.No.3866 of 2013 under Order 7 Rule 11 of C.P.C. to reject the plaint filed by the plaintiff in O.S.No.7452 of 2012 as the suit is barred by law and that the plaint does not disclose a cause of action.
53. It is, therefore, presumed that the defendant had filed the above application under Clauses 'a' and 'd' of Rule 11 of Order 7 C.P.C.
54. Rule 11 envisages that the plaint shall be rejected in the following cases:-
a. Where it does not disclose a cause of action.
b. xxxx c. xxxx d. Where the suit appears from the statement in the plaint to be barred by any law. 55. In so far as Clause 'd' is concerned, if the suit is specifically barred by any law, which is for the time being in force, then the plaint can be rejected on this ground. In so far as Clause 'a' is concerned, where the plaint does not disclose a cause of action it can also be rejected on this ground. 56. With reference to Clause 'a' of Rule 11, the prayer portion of 'A' of the plaint is very much relevant.
A. To pass a judgment and decree declaring the resolution, dated 1.11.2012 passed by the Board of Directors of Defendant authorising conversion of Foreign Currency Convertible Bonds held by the plaintiff and allotment of 1,97,46,885 equity shares of face value of Re.1 each in favour of the plaintiff as null and void being contrary to the agreement between the parties as well as in law. 57. On coming to paragraph No.31 of the plaint, i.e., cause of action paragraph, it is stated that the cause of action arose on 1.11.2012 when the Board of Directors of the Defendant passed the resolution seeking to convert the FCCBs held by the the plaintiff into equity shares and allotting 1,97,46,885 equity shares of face value of Re.1 each in favour of the plaintiff. 58. This paragraph has repeatedly been saying that the cause of action arose only on 1.11.2012 for seeking the relief of declaration to declare the resolution passed by the Board of Directors of the defendant as null and void. 59. With reference to Order 7 Rule 11 of C.P.C., Mr.J. Sivanandaraaj, learned counsel appearing for the defendant (revision petitioner) in order to support his contention to reject the plaint, has placed reliance upon the following four decisions:- a. Umesh Chandra Saxena and others etc., vs. Administrator General and others (AIR 1999 All 109). b. Shamsher Singh vs. Rajinder Prashad and others (1973) 2 SCC 524). c. T. Arivanandam vs. T.V. Satyapal and another (AIR 1977 SC 2421). d. Sopan Sukhdeo Sable and others vs. Assistant Charity Commissioner and others ((2004) 3 SCC 137). 60. In Umesh chandra's case, cited first supra, a testamentary suit was filed by Umesh Chandra Saxena for a letter of administration in respect of the properties of Shri Ram Chandra Mission and for a declaration that the petitioner No.1 (Umesh Chandra Saxena) was the President of the Mission, Shahjahanpur, and the petitioner No.2 was the Secretary thereof. 61. An application was filed before the learned Single Judge of Allahabad High Court under Order 7 Rule 11 of C.P.C. to reject the plaint on the ground that the plaint did not disclose a cause of action and the reliefs had been camouflaged for the reasons that the relief of declaration, as claimed by the plaintiff, was barred by limitation. The learned Single Judge of the Allahabad High Court had rejected the plaint by an order, dated 16.10.1995. 62. Impugning this order, a special appeal under Chapter VIII Rule 5 of the Allahabad High Court Rules, was filed. 63. After hearing both sides, the Division Bench of Allahabad High Court has observed that the order 7 Rule 11 of C.P.C. casts a duty upon the court to reject the plaint if the circumstances indicated therein were existing. It cannot be the law that this power of the Court would be curtailed in any manner simply because the Court had proceeded to some length, without application of mind on this point. The rule itself does not indicate anywhere that the power is to be exercised upon an application, or if such an application is filed it should be at any particular stage...... We would only add that an action under Order 7 Rule 11 C.P.C. does not await an application by any party. It is the duty of the Court to reject a plaint if the reasons therefore, are found existing from a reading of the plaint itself and not from a reading of the defence or other documents. 64. In Shamsher Singh's case, cited second supra, the Division Bench of the Hon'ble Apex Court with reference to the pecuniary jurisdiction relating to Court fees payable on the plaint speaks through Hon'ble Mr. Justice Alagiriswami in the following manner:-
As regards the main question that arises for decision it appears to us that while the court-fee payable on a plaint is certainly to be decided on the basis of the allegations and the prayer in the plaint and the question whether the plaintiff's suit will have to fail for failure to ask for consequential relief is of no concern to the court at that stage, that court in deciding the question of court-fee should look into the allegations in the plaint to see what is the substantive relief that is asked for. Mere astuteness in drafting the plaint will not be allowed to stand in the way of the court looking at the substance of the relief asked for. 65. With regard to the pecuniary jurisdiction of the trial court in so far as the present suit is concerned it would be discussed in detail in the later paragraphs. 66. In T. Arivanandam's case, cited third supra, while speaking on behalf of the Division Bench of the Apex Court, V.R. Krishna Iyer, J., has observed as under:- We have not the slightest hesitation in condemning the petitioner for the gross abuse of the process of the court repeatedly and unrepentantly resorted to. From the statement of the facts found in the judgment of the High Court, it is perfectly plain that the suit now, pending before the First Munsif's Court, Bangalore, is a flagrant misuse of the mercies of the law in receiving plaints. The learned Munsif must remember that if on a meaningful-not formal-reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, be should exercise his power under Or. VII r. 1 1 C.P.C. taking care to see that the ground mentioned therein is fulfilled. And, if clever, drafting has created the illusion of a cause of action, nip it in the bud at the first hearing by examining the party searchingly under Order X C.P.C. An activist Judge is the answer to irresponsible law suits. 67. In Sopan's case, cited fourth supra, Arijit Pasayat, J., with reference to Order 7 Rule 11 C.P.C., speaks as under:- Order 7 Rule 11 lays down an independent remedy made available to the defendant to challenge the maintainability of the suit itself, irrespective of his right to contest the same on merits. The law ostensibly does not contemplate at any stage when the objections can be raised the trial court can exercise the power at any stage of the suit, that is, before registering the plaint or after issuing summons to the defendant at any time before the conclusion of the trial and also does not say in express terms about the filing of a written statement ; for the purpose of deciding an application under clauses (a) and (d) of Order 7 Rule 11 C.P.C., the averments in the plaint are germane. 68. In the light of the observations made by the Apex Court in the decisions cited above, it is to be understood that the basic question to be decided while dealing with an application filed under Order 7 Rule 11 (a) and (d) of C.P.C., is :- Whether a real cause of action has been set out in the plaint and whether the suit is expressly barred by any law or something purely illusory has been stated with a view to get around Order 7 Rule 11? 69. As observed by the Apex Court in the above cited decisions, the trial Court must remember that on a meaningful and not formal reading of the plaint, it is manifestly vexatious and meritless in the sense of not disclosing a clear right to sue, it should exercise the power under Order 7 Rule 11(a) and (d). 70. Mr. J. Sivanandaraaj, learned counsel appearing for the revision petitioner has repeatedly made stress on the point that the trial court dealing with civil matters did not have jurisdiction to entertain the case of this nature as the dispute had necessarily to be agitated before the company court. 71. He has also maintained that the jurisdiction of the civil court had been expressly barred under Section 10 of the Companies Act, 1956 and in support of his argument, he has also drawn the attention of this Court to Section 155 and Section 111A of the Act.
72. Further, in order to fortify his arguments, he has also placed reliance upon the following two decisions:- a. Ammonia Supplies Corporation (P) Ltd., vs. Modern Plastic Constainers Pvt. Ltd., and others ((1998) 7 SCC 105). b. Manoj Kumar Sontholia vs. Nariman Point Building Service and Trading Pvt. Ltd., and others (1995) 84 Comp.Cases 559 (Mad). 73. It is apparent that Section 155 of the Act deals with the power of the company to rectify the 'Register of members' maintained by a company. 74. Similarly, Section 111-A of the Act deals with, Rectification of register on transfer. 75. Both the sections are relating to the rectification of the register of the members maintained by the company as well as rectification of register on transfer respectively.
76. On perusal of these decisions, this court is of considered view that both the decisions would not be made applicable to the facts and circumstances narrated in the instant case on hand.
77. In Ammonia Supplies Corporation (P) Ltd., vs. Modern Plastic Constainers Pvt. Ltd. and others ((1998) 7 SCC 105), the appellant company went in liquidation and was directed to be wound up by the Punjab and Haryana High Court Circuit Bench at Delhi. By order, dated 24.12.1962, the said High Court was pleased to transfer all the proceedings to the District Court at Delhi. One Murarilal Bhargava, who is the sole beneficiary of the said Company, had filed an application for absolute stay of the liquidation proceedings which was granted on 1.2.1978 till further orders.
78. That on 18.1.1983 one Mr.V.K. Bhargava had died in a car accident, which according to the appellant is the reason of dispute between the appellant company and the respondent company. It is because of this the appellant had filed a composite petition on 10.9.1984 under Sections 397, 398 and 155 of the Companies Act for rectification of the Register of Members and for oppression and mismanagement of the respondent company, which was admitted on 14.9.1984. However, it seems that in the petition, which was filed by the appellant company under Sections 397, 398 read with Section 155, the court by its order confined the relief under Section 155, that is to say, the rectification prayer made therein.
79. In the above said appeal, the Hon'ble Apex Court was concerned with this part, viz., the jurisdiction of the Court under Section 155, while dealing with any application for the rectification.
80. In so far as the view of this Court is concerned, the above decision cannot be equated with the present case on hand and equally, Section 155 of the Act also cannot be compared or taken umbrage by Mr. J.Sivanandaraj to substantiate his contention questioning the jurisdiction of the trial Court.
81. In Manoj Kumar's case (1995) 84 Comp.Cases 559 (Mad), cited second supra, the plaintiff had filed the suit before this Court in C.S.No.1246 of 1992 against the first defendant company (in short NPBS ), four other newspaper companies and six other persons. The suit was primarily concerned with the validity of board meeting of the second defendant/Indian Express, Bombay Limited, Bombay, held on January 23, 1991 and certain resolutions for appointing additional directors.
82. The plaintiff/applicant also prayed for declaration and permanent injunction in respect of various acts committed by the sixth defendant/sixth respondent along with other directors, particularly Nusli Wadia (Seventh defendant) and Vane Srinivasan (eighth defendant).
83. It appears that many interlocutory applications were filed by the applicant in the above said suit. The plaintiff had also filed another suit in C.S.No.1247 of 1992 against NPBS and nine others. The defendants include Nusli Wadia, Venu Srinivasan, Mrs. Saroj Goenka and her three daughters. That suit challenged the transfer of shares in the aforesaid board meeting held on January 5, 1991 and sought for declaration that 24.32 per cent shares have been held in trust for the benefit of the plaintiff's brother.
84. In the above said case, A.R. Lakshmanan, J., Judge of this Court (as he then was) has observed as under:-
In my view, it will not be open to this Court to interfere with the day to day functions, management and administration of a company unless it is established that the decisions taken by the board are ultra vires the Act or the articles of association of the company.
85. As observed by the learned Judge, the above suit was related to the day to day functions and administration of the plaintiff's company. This decision could also not be equated with the instant case on hand.
86. According to Mr.J. Sivanandaraaj, the plaintiff company in the present suit was a complete third party to the defendant company and was certainly not a director or the General Body of the Defendant Company and as such the plaintiff company had absolutely no locus standi and consequently, had no cause of action to file the suit against the defendant company seeking a declaration in the absence of proximal and direct nexus between the relief sought and the cause of action.
87. This argument was strongly objected by Mr.M.S. Krishnan, learned Senior Counsel appearing for the plaintiff company.
88. Mr. M.S. Krishnan, learned Senior Counsel has submitted that it could not be suggested that the jurisdiction of the civil court was ousted as per Section 10 of the Act.
89. He has also argued that the Supreme Court had repeatedly held that a provision seeking to bar the jurisdiction of the civil court requires strict interpretation and the court would normally lean in favour of a construction, which would uphold retention of jurisdiction.
90. He has also submitted that under Section 2(11) of the Act (being the definition clause), a Court is defined to mean the Court as provided under Section 10 of the Act.
91. In this connection, he would submit that the definition clause was attracted only in respect of a proceedings under the Companies Act.
92. He has also argued that the plaintiff had made specific averments in the plaint that the passing of the Board Resolution, dated 1.11.2012 and the purported conversion of foreign currency convertible bonds into equity shares in the defendant company without instruction or permission of the plaintiff by the defendant was the breach of the agreement between the parties and hence, had caused prejudice to the rights of the plaintiff.
93. He would further submit that on account of this reason, the plaintiff had clearly established multiple causes of action and has made specific averments to state that the passing of the Board Resolution, dated 1.11.2012 and the purported conversion of FCCBs into equity shares in the defendant company without the instruction or permission of the plaintiff by the defendant was contrary to the agreement between the parties and hence, prejudicial to the rights of the plaintiff and therefore, the civil court had got jurisdiction to entertain the suit as the company court did not have jurisdiction in the matters falling outside the purview of the Act. 94. Mr.M.S. Krishnan, learned Senior Counsel during the course of his arguments has made reference to the provisions of Section 9 C.P.C., Section 2(11) and Section 10 of the Companies Act, 1956 to lay emphasis on the point that in so far as this case is concerned, the jurisdiction of a civil court is not ousted. 95. As contemplated under Section 9 of C.P.C., the test of jurisdiction over the subject matter is whether the court can decide the case at all and not whether the court has authority to issue a paticular kind of order in the course of dealing with the same. A court is said to have jurisdiction of the subject matter of a particular controversy if the court has authority to hear and decide causes of a class to which the particular controversy belongs. 96. In defining the jurisdiction of the subject matter in these terms, the courts have emphasised that the jurisdiction of a court depends upon the right to decide the case and not upon the merits of its decision. This proposition has been laid by the Apex Court in Pankaj Bhargav vs. Mahendra Nath ((1991) 1 SCC 556). 97. It is well established law that jurisdiction of the Court is to be determined on the basis of allegations made in the plaint. The pith and substance of the plaint allegations have to be kept in mind; so also, the pith and substance of the relief sought. It is the choice of the plaintiff to choose his forum. It is another thing that the plaintiff fails to establish his case before such forum. 98. The question as regards ouster of a jurisdiction of a civil court must be construed having regard to the scheme of the Act as also the object it seeks to achieve. The laws in this regard is no longer res integra. 99. A plea of bar to jurisdiction of a civil court must be considered having regard to the contentions raised in the plaint. For the said purpose, averments disclosing cause of action and the reliefs sought for herein must be considered in their entirety. The court may not be justified in determining the question, one way or the other, only having regard to the reliefs claimed de hors the factual averments made in the plaint. The rules of pleadings postulate that a plaint must contain material facts. 100. As discussed in the foregoing paragraphs, if the dispute between the parties to a suit is to be adjudicated purely in accordance with the provisions of the Companies Act, then the company court alone is having jurisdiction under the Companies Act, 1956 with respect to that matter relating to that company as provided under Section 10 of the Companies Act. 101. Mr.M.S. Krishnan, learned Senior Counsel appearing for the respondent/plaintiff has placed reliance upon the following decisions to support his contention.
a. Dwarka Prasad Agarwal (D) by L.Rs. and another vs. Ramesh Chandra Agarwala and others (AIR 2003 SC 2696). b. Thiruvalluvar Velanmai Kazhagam (P) Ltd., vs. M.K. Seethai Achi (1988) 64 Comp.Cases 304). c. R.R. Rajendra Menon (No.2) vs. Cochin Stock Exchange Ltd., and another (1990) 69 Comp.Cases 256). d. Maturi Umamaheswara Rao and others vs. Pendyala Venkatrayudu and others (AIR 1970 Andhra Pradesh 225). e. Santosh Poddar and Another vs. Kamalkumar Poddar and others (1992 (3) BomCR 310). 102. In Dwarka Prasad's case (AIR 2003 SC 2696), cited first supra, the Supreme Court, in paragraph Nos.19 and 22, has observed as under:- 19. A bare perusal of the aforementioned provisions leaves no manner of doubt that thereby the jurisdiction of the civil court has not been ousted. The civil court, in the instant case, was concerned with the rival claims of the parties as to whether one party has illegally been dispossessed by the other or not. Such a suit, apart from the general law, would also be maintainable in terms of Section 6 of the Specific Relief Act, 1963. In such matters the court would not be concerned even with the question as to title/ownership of the property. 22. The dispute between the parties was eminently a civil dispute and not a dispute under the provisions of the Companies Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil courts to determine all dispute of civil nature unless the same is barred under a statute either expressly or by necessary implication. Bar of jurisdiction of a civil court is not to be readily inferred. A provision seeking to bar jurisdiction of civil court requires strict interpretation. The court, it is well-settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil court. The burden of proof in this behalf shall be on the party who asserts that the civil court's jurisdiction is ousted. [See Sahebgouda (dead) by Lrs. and Others vs. Ogeppa and Others [2003 (3) Supreme 13]. Even otherwise, the civil court's jurisdiction is not completely ousted under the Companies Act, 1956.
103. In Thiruvalluvar Velanmai Kazhagam's case, (1988) 64 Comp.Cases 304), cited second supra, the learned Single Judge of this Court has observed as under:- 9. It is well settled that every presumption should be made in favour of the jurisdiction of a civil Court. In other words, the exclusion of Jurisdiction of civil Courts is not to be readily inferred. Such exclusion must be either explicitly expressed or clearly implied. A provision of law ousting the jurisdiction of a civil Court must be strictly construed and the onus lies on the party, seeking to oust the Jurisdiction, to establish his right to do so.
10. Section 10 of the Companies Act defines the Court having jurisdiction under that Act as the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Court subordinate to the High Court in pursuance of Sub-section (2), which enables the Central Government by notification in the Official Gazette to empower any district Court to exercise all or any of the jurisdiction conferred by this Act upon the Court. The Court having jurisdiction under the Act, as defined under Section 10 of the Act, shall have power to deal with all matters, for which provision has been made in the said Act. Hence, in respect of all matters dealt with under the Companies Act, the Court having jurisdiction is the Court as defined under Section 10 of the Act. But, in respect of matters not dealt with by the Companies Act, or for which the Companies Act does not provide remedies, the ordinary Civil Court alone will have jurisdiction. In other words, the Civil Court will have no jurisdiction only in respect of matters falling exclusively within the jurisdiction under the Companies Act. We have now to see whether the subject-matter of the suit is a matter falling within the ambit of the Companies Act.
104. In R.R. Rajendra Menon's case, (1990) 69 Comp.Cases 256), cited third supra, while speaking on behalf of the Division Bench of the Kerala High Court, K.T. Thomas, J., with reference to the jurisdiction of a civil court to entertain the suit of this nature (as in the case on hand) has observed as under:- 6. No provision in the Act has been brought to our notice as specifying expressly or impliedly that an application to compel a company to comply with the requirements in Section 257 will lie in the company court. The Act specifies certain questions or disputes to be resolved by the Central Government, certain others by the Company Law Board and certain matters to be dealt with by the company court. Only such matters as are specified in the Act or in the rules to be dealt with by the court could the company court deal with. The jurisdiction of the ordinary civil court can be regarded as impliedly barred in respect of those matters specified in the Act to be dealt with by the court. It cannot be held that the jurisdiction of the civil court in respect of all other matters relating to a company is barred. The corollary is that, unless a particular matter is specified in the Act to be dealt with by the company court, it cannot exercise jurisdiction merely because it is also a matter which relates to a company.
7. A Division Bench of this court has held in Star Tile Works v. N. Govindan, AIR 1959 Ker 254, that the company court has no jurisdiction in all company matters. The decision arose from a suit filed in the regular civil court for a declaration that proceedings of the annual general meeting of a company are void. One of the questions raised in the suit related to the jurisdiction of the civil court to entertain such a suit. The Division Bench held that such a relief can be granted by the civil court. The said principle was followed by M. P. Menon J. in R. Prakasam v. Sree Narayana Dharma Paripalana Yogam [1980] 50 Comp Cas 611 (Ker). The following observations of the learned single judge can be quoted with approval (head-note) :
"Whether for vindicating corporate rights or personal, whether representative or individual, the 'action' cannot be confused with initiation of proceedings before the company court in all matters. Except in cases where the Companies Act, 1956, confers jurisdiction on the company court or some other authority like the Central Government or the Company Law Board, either expressly or by implication, all other disputes pertaining to a company are to be resolved through the forum of civil courts when the disputes are capable of being resolved by them".
8. The learned judge also observed that it is difficult to construe the definition clause under Section 2(11) or even Section 10 as one conferring jurisdiction exclusively or otherwise. Section 10 of the Act does not purport to invest the company court with jurisdiction over every matter arising under the Act. Where a wrong is done by an individual member, he could insist by recourse to a civil suit. In the said case, an application was filed before the company court for compelling the company to hold the annual general meeting, since Section 166 of the Act imposes such a duty on the company. It was held that such an application is not maintainable in the company court as the Act does not specify a matter of that nature to be dealt with by the company court.
105. With reference to Section 2(11) and Section 10 of the Companies Act to make stress on the point that the Company Court has no exclusive jurisdiction in matters falling outside the purview of the Companies Act, the Division Bench of Andhra Pradesh High Court in Maturi Umamaheswara Rao's case, (AIR 1970 Andhra Pradesh 225), cited fourth supra, has observed in paragraph No.10 as under:- Section 2(11) defines 'Court' to mean, with respect to any matter relating to a Company, the Court having jurisdiction under this Act with respect to that matter in relation to that Company, as provided in S. 10. Section 10 lays down that the Court having jurisdiction under this Act shall be (a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court under sub-section (2). On a plain reading of these provisions it is clear that the High Court or the District Court, where the jurisdiction had been transferred to it, is the Court having jurisdiction under this Act, i.e., to deal with matters provided for by the Act, and it is not correct to say that the Company Court has exclusive jurisdiction in matters falling outside the Companies Act, e.g., suits on contracts or mortgage bonds executed by Companies. As already stated, the present is filed for recovery of the mortgage amount by sale of the mortgaged properties under Order 34 Rule 1 C.P.C. and we fail to see how the Subordinate Judge's Court at Rajahmundry which is the Original Court with unlimited jurisdiction cannot entertain the suit. We accordingly reject this contention. 106. In Santosh Poddar's case, (1992 (3) BomCR 310), cited fifth supra, the Division Bench of the Bombay High Court in paragraph No.21 with reference to Section 2(11) and Section 10 of the Companies Act, has held as under:- 21. From the provisions of the Companies Act we do not find anything by which we can infer that the jurisdiction of the Civil Court is ousted. The very fact that section 2(11) is part of the definition clause under the Companies Act under which a Court is defined to mean the Court as prescribed under section 10, clearly shows that whenever the term 'the Court' is used in any section of the Companies Act, the term 'Court' will have to be interpreted with reference to section 10. These sections will have no application where any general civil suit is filed. The definition clause is attracted only when resort is had to a proceeding under the Companies Act under a section which prescribes resort to a Court. Under the Companies Act powers are conferred not only on Courts but also on other authorities like the Company Law Board, the Central Government and the Registrar. Where a power is vested by the Act in a Court, that Court has to be ascertained with reference to section 10. Beyond so specifying the Court competent to deal with such a matter, section 10 cannot be construed as investing the Company Court with jurisdiction over every matter which may arise in respect of a Company or as divesting Civil Courts of their jurisdiction.
107. All the above decisions would collectively indicate a single point that Section 10 of the Act does not purport to invest the Company Court with jurisdiction over every matter arising under the Act. 108. If that matter falls outside the amplitude of the Companies Act and the remedy has to be availed only through the common law which is to be granted definitely by a civil court and in this connection, the jurisdiction of a civil court is not taken away as envisaged under Section 9 of C.P.C. 109. As argued by Mr. J. Sivanandaraaj, the plaintiff is neither a director nor a General Body of the defendant's company. 110. Of course, the plaintiff's company, in so far as the defendant's administration is concerned, is a complete third party. 111. As adumbrated supra, in view of Section 10 of the Companies Act, 1956, the jurisdiction in respect of the matters pertaining to the Companies Act rest with the Company Court. 112. Here the plaintiff's main contention is that the passing of the impugned Board Resolution, dated 1.11.2012 and the purported conversion of the FCCBs into equity shares in the defendant company without the instruction or permission of the plaintiff's company by the defendant is in breach of the subscription agreement entered into between the plaintiff's company and the defendant's company, which is prejudicial to the rights of the plaintiff's company. 113. Admittedly, the alleged breach of agreement by the defendant's company is not relating to the internal administration of the defendant's company. If it is so, we can understand that the scope of interference by a civil court is limited. But in the given case on hand, the dispute is pertaining to the breach of contract between the plaintiff and the defendant and it is not pertaining to a matter comes under the purview of the Companies Act and therefore, this Court is of considered view that the trial Court is having jurisdiction to entertain the present suit as the company court does not have jurisdiction in the matters falling outside the purview of the Companies Act. 114. Mr. J. Sivanandaraj has also sought the assistance of Section 34 of the Specific Relief Act and raised a question as to whether a third party can ask for a declaration to declare the resolution passed by the defendant's company as null and void. 115. Section 34 of the Specific Relief Act comes under the Chapter 6 of the Specific Relief Act under the caption of Declaratory Decrees. This Section deals with, Discretion of court as to declaration of status or right. It enacts as under:-
Section 34. Discretion of court as to declaration of status or right - Any person entitled to any legal character, or to any right as to any property, may institute a suit against any person denying, or interested to deny, his title to such character or right, and the court may in its discretion made therein a declaration that he is so entitled, and the plaintiff need not, in such suit, ask for any further relief: Provided that no court shall make any such declaration where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so. 116. This section itself is very clear that any person, who is entitled to any legal character or to any right may institute a suit against any person denying or interested to deny his title to such character or right and the court in its discretion may grant a decree of declaration, if that person is so entitled. 117. The following are the essential conditions for seeking the relief of declaration:- a. that the plaintiff is a person entitled to any legal character or to any right as to any property (that he has a present interest); b. that the defendant is a person denying, or interested to deny the plaintiff's title to such legal character or right (that there is an infringement of the plaintiff's rights); c. that the declaration sued for is a declaration that the plaintiff is entitled to a legal character or to a right to any property; and d. that, where the plaintiff is able to seek further relief that a mere declaration, he is seeking such relief (that is, a consequential relief); 118. In so far as the present case is concerned, the plaintiff has shown his present existing interest in himself coupled with a present danger or detriment to his right.
119. Keeping in view of the principles enumerated above, the plaintiff, though being a third party to the defendant's administration since he is a party to the subscription agreement entered into between the plaintiff and the defendant and his rights were affected in pursuant to the resolution of the defendant's company, dated 1.11.2012, is entitled to ask for declaration to declare the impugned resolution as null and void. 120. In this regard, the decision in K.P. Ramakrishna Pattar vs. K.P. Narayana Pattar (AIR 1915 Madras 584) relied upon by Mr.J. Sivanandaraaj, is not made applicable to the instant case on hand. 121. Lastly, with reference to the prayer portion 'A' of the plaint, Mr.J. Sivanandaraaj has submitted that the trial court had got no pecuniary jurisdiction to entertain the suit, because the plaintiff was seeking for a declaration to declare the resolution, dated 1.11.2012 passed by the Board of Directors of the defendant's company authorising conversion of Foreign Currency Convertible Bonds held by the plaintiff and allotment of 1,97,46,885/- equity shares of face value at Re.1/- each in favour of the plaintiff as null and void. 122. In this connection, he would submit that since the allotment of 1,97,46,885 equity shares of face value at Re.1/- each in favour of the plaintiff was also sought to be declared as null and void, the trial Court did not have pecuniary jurisdiction beyond the limit of Rs.25,00,000/- and therefore, on this ground also the plaint ought to have been rejected by the Court below. 123. This argument is not able to be countenanced, because as it appear from the valuation paragraph of the plaint with regard to prayer portion 'A', the suit has been valued under Section 25(d) of the Tamil Nadu Court Fees and Suits Valuation Act, 1955. 124. Section 25 of the Tamil Nadu Court Fees and Suits Valuation Act, 1955, enacts as under:- 125. Section 25. Suits for Declaration :- In a suit for a declaratory decree or order, whether with or without consequential relief, not falling under section 26- a. xxxx b. xxxx c. xxxx d. In other cases, whether the subject-matter of the suit is capable of valuation or not, fee shall be computed on the amount at which the relief sought is valued in the plaint or on (rupees one thousand), whichever is higher. 126. The above bracketed portion has been substituted for the words rupees four hundred by the Tamil Nadu Act 17 of 2003, with effect from 15th June 2003.
127. Now let us see the prayer portion 'A':- Pass a Judgment and decree declaring the resolution, dated 1.11.2012 passed by the Board of Directors of Defendant authorising conversion of Foregin Currency Convertible Bonds held by the plaintiff and allotment of 1,97,46,885 equity shares of face value at Re.1/- each in favour of the plaintiff as null and void being contrary to the agreement between the parties as well as in law.
128. This prayer portion consists of two compartments as under:-
a. To declare the resolution, dated 1.11.2012 passed by the Board of Directors of Defendant authorising conversion of Foreign Currency Convertible Bonds held by the plaintiff and b. Allotment of 1,97,46,885 equity shares as null and void.
129. On a careful reading of the above prayer portion, this Court finds that though it superficially appears to have two compartments, the prayer 'A' portion is singular in nature, because the allotment of 1,97,46,885 equity shares of face value at Re.1/- each in favour of the plaintiff is in pursuance to the Defendant's Board Resolution, dated 1.11.2012. Therefore, the word 'and', which act as a conjunction, combining these two compartments into one unit.
130. Another thing is that the plaintiff has not sought for any relief with regard to recovery of money. Since the passing of resolution, dated 1.11.2012 follows the allotment of shares, the said resolution itself is incapable of valuation.
131. Clause 'd ' to Section 25 of the Court fees Act itself is very clear that whether the subject matter of suit is capable of valuation or not, fee shall be computed on the amount at which the relief sought is valued in the plaint or on rupees one thousand, whichever is higher.
132. Here, the prayer 'A' portion has been valued at Rs.9,32,000/- for which an ad valorem court fee of Rs.69,900.50 seems to have been paid under Section 25(d) of the Tamil Nadu Court Fees and Suits Valuation Act, 1955.
133. For prayer 'B' portion, it has been valued at Rs.1000/-, under Section 27 of the Court Fees Act and a sum of Rs.75.50 has been paid.
134. It is to be noted that the plaintiff has also given an undertaking to pay any additional sum as court fee if found necessary. Therefore, it is the duty of the trial court to scrutinize upon the valuation of the suit and calculate the appropriate fee, if found necessary.
135. This Court, therefore, is of considered view that the trial Court is having pecuniary jurisdiction to entertain the suit .
136. In so far as the Clauses 'a' and 'd' of Rule 11 of Order 7 C.P.C. are concerned, this Court is of view that the plaintiff has shown specific cause of action to institute the suit and they have also demonstrated that the suit has not been barred by any law particularly under Section 10 of the Companies Act, 1956.
137. Further, this Court would like to point out that the trial court is having jurisdiction to entertain the suit in view of Section 9 of C.P.C.
138. Keeping in view of the above facts and related circumstances of the case, this Court is of firm view that the revision petition filed by the defendant is liable to be dismissed.
Accordingly, the revision petition is dismissed confirming the order, dated 19.8.2013 and made in I.A.No.3866 of 2013 in O.S.No.7452 of 2012 on the file of the learned 17th Assistant Judge, City Civil Court, Chennai. The learned trial Judge, viz., 17th Assistant Judge, City Civil Court, Chennai, is hereby directed to dispose of the suit in O.S.No.7452 of 2012 within six months from the date of receipt of a copy of this order. However, there will be no order as to costs. Connected M.P. is also dismissed.
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T. MATHIVANAN, J.
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CRP(NPD) 4058 of 2013
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M.P.No.1 of 2013
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