National Company Law Appellate Tribunal
Gireesh Sanghi (Huf) vs Sanghi Industries Pvt Ltd on 1 December, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
Company Appeal (AT) (CH) No. 95/2023
(IA Nos. 1195, 1196 & 1197 / 2023)
In the matter of:
Gireesh Kumar Sanghi ...Appellant
V
Sanghi Industries Ltd. & 19 Ors. .... Respondents
WITH
Company Appeal (AT) (CH) No. 96/2023
(IA Nos. 1201, 1202 & 1203 / 2023)
In the matter of:
Gireesh Sanghi (HUF) ...Appellant
V
Sanghi Industries Ltd. & 17 Ors. .... Respondents
Present :
For Appellant : Mr. Yogesh Jagia & Harshit Ratra, Advocate
For Respondents : Mr. R. Venkatavaradan, Advocate
For Mr. Sriram Venkatavaradan, Advocate for R2 /
Caveator
JUDGMENT
Per: Justice Rakesh Kumar Jain:
This order shall dispose of two appeals bearing CA (AT) (CH) No. 95 of 2023 filed by Mr. Gireesh Sanghi against the order dated 07.09.2023, passed by the National Company Law Tribunal, Hyderabad Bench - I (in short 'the Tribunal'), by which CP/10/59/HDB/2018 filed under Section 59 of the Companies Act, 2013 (in short 'the Act') r/w Rule 11 of the NCLT Rules, 2016 (in short 'Rules') has been dismissed as not maintainable 2 before the Tribunal (in short 'first appeal') and CA (AT) (CH) No. 96 of 2023 filed by Mr. Gireesh Sanghi (HUF) against the order dated 07.09.2023 passed by the National Company Law Tribunal, Hyderabad Bench - 1, by which CP/33/59/HDB/2018 filed under Section 59 of the Act r/w Rule 11 of the Rules has been dismissed as not maintainable before the Tribunal (in short 'second appeal').
2. In the first appeal, the application under Section 59 of the Act was filed seeking the following relief:-
"a. Declare that 1,33,62,800 shares transferred on 18.12.2014 is in willful violation of Orders of Hon'ble Company Law Board, 23.10.2008 and 28.10.2009. b. Direct rectification of Register of Members of Respondent No. 1 Company to the extent of 1,33,62,800 shares transferred to Respondent No. 2 on 18.12.2014, previously held by R7 to R l7 and as detailed below and consequent rectification of shareholding of R2 in R1 Company:
SI. Name of the Respondent Impugned
No. Transfer of
Shares
1. SZF Pvt Ltd (R7) 24,00,000
2. Balaji Zippers Pvt Ltd (R8) 6,00,000
3. Sanghi Poly Zips Pvt Ltd (R9) 6,00,000
4. Sanghi Synthetics Pvt Ltd Rl0) 6,00,000
5. Alpha Zippers Pvt Ltd (Rl1) 6,00,000
6. Fancy Zippers Pvt Ltd (Rl2) 6,00,000
7. SKK Zippers Pvt Ltd (R13) 6,00,000
8. Maruthi Fasteners Pvt Ltd Rl4) 6,00,000
9. Sanghi Threads Pvt Ltd (Rl5) 6,00,000
10. Sanghi Filaments Pvt Ltd (Rl6) 7,50,000
11. Sanghi Polyesters Ltd (Rl7) 54,12,800
Total 1,33,62,800
c. Direct the Respondent No.18 to 20 to effect the changes to the beneficiary accounts immediately.
d. Direct the Registrar of companies, to initiate appropriate proceedings against directors of R7 to Rl7 at the contemporaneous time (on 18.12.2014) for fraudulently transferring the shares of held by Respondent No. 7 to 17 without receiving consideration.
Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 3 e. Further any other consequential, incidental or other order(s) as this Hon'ble Tribunal may deem fit in the circumstances of the case"
3. Whereas the application under Section 59 of the Act was filed in the second appeal for the following reliefs: -
"a. An order declaring that 1,33,62,800 shares of R7 to Rl7 transferred on 18.12.2014 is illegal and null and void and also in violation of Orders of Hon'ble Company Law Board, 23.10.2008 and 28.10.2009.
b. Directions for rectification of Register of Members of Respondent No. 1 Company to the extent of 1,33,62,800 shares transferred to Respondent No. 2 on 18.12.2014, previously held by R7 to Rl7 and as detailed below and consequent rectification of shareholding of R2 in RI Company by restoring name of R7 to R17 in members register of R1 Company:
SI. Name of the Respondent Impugned
No. Transfer of
Shares
1. SZF Pvt Ltd (R7) 24,00,000
2. Balaji Zippers Pvt Ltd (R8) 6,00,000
3. Sanghi Poly Zips Pvt Ltd (R9) 6,00,000
4. Sanghi Synthetics Pvt Ltd Rl0) 6,00,000
5. Alpha Zippers Pvt Ltd (Rl1) 6,00,000
6. Fancy Zippers Pvt Ltd (Rl2) 6,00,000
7. SKK Zippers Pvt Ltd (R13) 6,00,000
8. Maruthi Fasteners Pvt Ltd Rl4) 6,00,000
9. Sanghi Threads Pvt Ltd (Rl5) 6,00,000
10. Sanghi Filaments Pvt Ltd (Rl6) 7,50,000
11. Sanghi Polyesters Ltd (Rl7) 54,12,800
Total 1,33,62,800
c. Directions to Respondent No.18 to effect the changes to the beneficiary accounts immediately."
4. The Tribunal after referring to the averments made by the Applicant and the reply by the Respondents framed a question as to whether the rectificatory jurisdiction under Section 59 of the Act, which is summary in nature can be exercised where there are contested facts and disputed questions?
5. The Tribunal relied upon two decisions of the Hon'ble Supreme Court, namely, Ammonia Supplies Corporation P. Ltd. Vs. Modern Plastic Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 4 Containers Pvt. Ltd. & Ors., (1998) 7 SCC 105 and IFB Agro Industries Limited Vs. SICGIL India Limited & Ors., (2023) SCC On Line SC 8 and observed that "therefore, in the light of the law as laid down in re, Ammonia Supplies and IFB Agro, Supra, the present petition since filed under section 59 Companies Act 2013, it is imperative for us to examine whether or not the factual assertions as made tantamount to 'contested facts and disputed questions' and if the same are found to be so, then relegate the parties to a competent forum. So that these facts can be investigated and adjudicated." Thereafter, the Tribunal made the following observations in Paras 11 and 12 which are reproduced as under:-
"11. Thus, both the pleadings as well as submissions since are focussed on pleas such as, illegal transfer of shares, disputed family settlement, non-payment of consideration in respect of the shares transferred, loss of crores of rupees to the shareholders, the petitioner locus standi of transfer of equity shares for discharge of loans, dismissal of the plea of violation of the order of status quo by the respondents etc, in our considered view the same are of the nature of seriously contested facts and disputed questions. So much so, in the light of the rulings, in re, Ammonia Supplies and IFB Agro, supra, the rectificatory jurisdiction of this Tribunal under Section 59 of the Companies Act, 2013 being summary, cannot be exercised in this case and the remedy if any for the parties herein is to take recourse to a competent civil court. As such the present petition is not maintainable, before this Tribunal.
12. Point answered accordingly."
6. Counsel for the Appellant has vehemently argued that there is no dispute regarding family settlement rather the dispute is regarding illegal transfer of share and non-payment of consideration in respect of the shares transferred which has caused huge loss to the shareholders.
Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 5 Secondly, it is submitted that the decisions in the case of Ammonia Supplies and IFB Agro (Supra) are not applicable after coming into force of the Act in which Section 430 of the Act has been provided specifically excluding the jurisdiction of the Civil Court. It is submitted that the Hon'ble Supreme Court in the case of Shashi Prakash Khemka Vs. NEPC Micon & Ors. (2019) 18 SCC 569 has categorically held that the jurisdiction of the Civil Court is completely barred in Section 430 of the Act and held that where a dispute to arise today, the civil suit remedy would be completely barred and the power would vest with the NCLT under Section 59 of the Act. He has also referred to a decision in the case of Adesh Kaur Vs. Eicher Motors Limited and Ors., (2018) 7 SCC 709 and a decision of this Court in the case of MAIF Investment Vs. M/s Ind- Barath & Ors., CA (AT) No. 334 of 2018. It is further submitted that decision in the case of Ammonia Supplies (Supra) is not applicable because at that time when the aforesaid judgment was rendered the jurisdiction of the Civil Court was not barred by the legislature. Similarly, it is submitted that in the case of IFB Agro (Supra), the Hon'ble Supreme Court was not deciding the issue which has arisen in this case rather it was determining the appropriate forum for adjudication and determination of violation of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 and Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 framed under the Securities and Exchange Board of India Act, 1992 and has not dealt with Section 430 of the Act.
Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 6
7. On the other hand, while defending, Counsel for the Respondent has argued that in the case of Ammonia Supplies (Supra), the Hon'ble Supreme Court has held, which has been extracted also by the Tribunal that "it is a summary power to carry out corrections or rectifications in the register of members and that the rectification must relate to and be confined to the facts that are evident and need no serious enquiry". Similarly, while referring to IFB Agro Industries Limited (Supra) he has again referred to the extracted portion in the impugned order which read as under:-
"The rectificatory powers of a Board/Company Court under Section 38 of the Companies Act, 1913, then under Section 155 of the 1956 Act, followed by Section JJJA introduced by the 1996 Amendment to the 1956 Act, and finally, Section 59 of the 2013 Act, demonstrate that its essential ingredients have remained the same. It is a summary power to carry out corrections or rectifications in the register of members. The rectification must relate to and be confined to the facts that are evident and need no serious enquiry."
8. We have heard Counsel for the parties and perused the record with their able assistance.
9. The issue in this case has been framed by the Tribunal that as to whether the rectificatory jurisdiction under Section 59 of the Act, which is summary in nature can be exercised where there are contested facts and disputed questions?
10. To answer this question, it would be relevant to refer to Section 59 and Section 430 of the Act, which are reproduced as under:-
"59. Rectification of register of members.--
(1) If the name of any person is, without sufficient cause, entered in the register of members of a company, or after Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 7 having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register.
(2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved. (3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.
(4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned. (5) If any default is made in complying with the order of the Tribunal under this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both."
"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 Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 8 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."
11. Since, the Tribunal has relied upon the decision in the case of Ammonia Supplies and IFB Agro (Supra) which has also been relied upon by Counsel for the Respondent, therefore, it would be apt to deal with two decisions to find out as to whether these decisions would apply? In the case of Ammonia Supplies (Supra), Section 155 of the Act of 1956 was in question which deal with the power of company court to rectify the register of members maintained by a company. The word 'rectification' has been defined as something what ought to have been done but by error not done and what ought not to have been done was done requiring correction. In this case, the question was framed as to whether in the proceedings under Section 155 of the Act of 1956, the court has exclusive jurisdiction in respect of all the matters raised herein or has only summary jurisdiction? The Hon'ble Supreme Court held that the company court under Section 155 has to adjudicate in the facts and circumstance whether the dispute raised really pertains to rectification or under the garb of rectification questions of fact involving contentious issues are raised and if dispute found to be relating to the peripheral field of rectification, then the company court under Section 155 will have exclusive jurisdiction but if finding is otherwise then the civil court's jurisdiction is not excluded. In the case of IFB Agro (Supra), the Hon'ble Supreme Court was considering the question in regard to the scope of the Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 9 rectificatory jurisdiction of the NCLT under Section 59 of the Act and was called upon to determine the appropriate forum for adjudication and determination of violations of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations 1997 and Securities and Exchange Board of India (prohibition of insider trading) Regulations 1992 framed under the Securities and Exchange Board of India Act, 1992. It was held that under Section 59 of the Act, in view of the Ammonia Supplies (Supra) the jurisdiction is summary in nature and not intended to be exercised where there are contested facts and disputed questions and in regard to the second issue it was held that transactions falling within the jurisdiction of Regulatory bodies created under a statute must necessarily be subjected to their ex-ante scrutiny, enquiry and adjudication. It was therefore rejected the contention that NCLT has exercised a parallel jurisdiction under Section 59 with Securities and Exchange Board of India for addressing violations of the Regulations and framed under the SEBI Act. However, when the matter pertaining to Ammonia Supplies (Supra) was decided on 04.09.1998, there was no such provision like Section 430 which is now existing in the Act by which the legislature has completely barred the jurisdiction of the Civil Court to entertain any suit or proceedings in respect of any matter which the Tribunal or Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force. In the case of IFB Agro (Supra), the provisions of Section 430 were not brought to the notice of the Hon'ble Court and were not adverted to whereas in the case of Shashi Prakash Khemka (Supra) relied upon by the Appellant, the Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 10 Hon'ble Supreme Court has specifically held that after coming into force of Section 430 of the Act, the jurisdiction in regard to the rectification would squarely fall under Section 59 of the Act and jurisdiction of the Civil Court is completely barred. In this regard, Paras 4 to 7 are reproduced as under:-
"4. Learned counsel for the appellants has drawn our attention to the view expressed in Ammonia Supplies Corporation (P) Ltd. vs. Modern Plastic Containers Pvt. Ltd. and Others (1998) 7 SCC 105, to canvass the proposition that while examining the scope of Section 155 (the predecessor to Section 111), a view was taken that the power was fairly wide, but in case of a serious dispute as to title, the matter could be relegated to a civil suit. The submission of the learned counsel is that the subsequent legal developments to the impugned order have a direct effect on the present case as the Companies Act, 2013 has been amended which provides for the power of rectification of the Register under Section 59 of the said Act.
5. Learned counsel has also drawn our attention to Section 430 of the Act, which reads 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."
The effect of the aforesaid provision is that in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred.
6. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and the power would be vested with the National Company Law Tribunal (NCLT) under Section 59 of the said Act. We are conscious of the fact that in the present case, the cause of action has arisen at a stage prior to this enactment. However, we are of the view that relegating the parties to civil suit now would not be the Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 11 appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded.
7. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before the NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today."
12. Similar view has been expressed in the case of Adesh Kaur (Supra) and also in the case of MAIF Investment (Supra).
13. Therefore, in our considered opinion, once the legislature has created a complete bar of the jurisdiction of the Civil Court by enacting Section 430 in the Act as per which no civil court shall have the jurisdiction to entertain any suit or proceedings in respect of any matter which the Tribunal or Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no civil court has the jurisdiction to grant injunction in respect of any action taken or to be taken in pursuance of any power conferred by or under the act or any other law for the time being in force by the Tribunal or Appellate Tribunal, there is no shred of doubt that the jurisdiction to decide the rectificatory jurisdiction under Section 59 of the Act shall be available to be exercised even where there are contested facts and disputed questions and regard may be had to the decision in the case of Shashi Prakash Khemka (Supra) as decided by the Hon'ble Supreme Court while referring to Section 430 of the Act.
14. With these observations, we allow both the appeals and set aside the impugned orders. Since, the application filed under Section 59 of the Act by the Appellant has simply been dismissed for want of jurisdiction, Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 12 therefore, we remand the matter back to the Tribunal to decide it in accordance with law and the parties are directed to appear before the Tribunal on 18th December, 2023.
[Justice Rakesh Kumar Jain] Member (Judicial) [Shreesha Merla] Member (Technical) 01st December, 2023 Sheetal Company Appeal (AT)(CH) Nos. 95 & 96 of 2023