Rajasthan High Court - Jaipur
Om Prakash Choudhary vs Kailash Garg And Others on 25 June, 2012
IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH
O R D E R
S.B. Civil Second Appeal No. 133/2010
Om Prakash Choudhary Vs. Dr.Kailash Garg & others
Date of Order : 25.06.2012
PRESENT
HON'BLE MR. JUSTICE PRASHANT KUMAR AGARWAL
Mr. S.M.Mehta Sr.Advocate with
Mr. Shashi Bhushan Gupta for the appellant.
Mr. G.K.Garg Sr.Advocate with
Mr. Saransh Saini for the respondents.
The plaintiff-appellant has preferred this civil second appeal under Section 100 of the Code of Civil Procedure against the judgment and decree dated 10.3.2010 passed by the Additional District Judge (Fast Track) No.5, Jaipur City, Jaipur in Civil Regular Appeal No.19/2009 whereby the learned appellate Court has upheld and affirmed the judgment and decree dated 26.9.2007 passed by the trial Court i.e. Additional Civil Judge (Junior Division) No.2, Jaipur City, Jaipur in Civil Suit No.402/2007 whereby the learned trial Court by allowing an application under Order 7 Rule 11 CPC filed by the defendant-respondents rejected the plaint on the ground that the Civil Court does not have jurisdiction to entertain the suit filed by the plaintiff-appellant.
2. Brief relevant facts for the disposal of this appeal are that the appellant filed a suit for declaration and permanent injunction with the averments that the appellant is one of the Promoter-Director and 50% shareholder of a Private Limited Company namely M/s Garg Hospital & Research Institute Pvt.Ltd. whereas the other Promoter-Director and Holder of remaining 50% shares was his natural father Late Shri Sualal Garg. It was further averred that the land referred to in the plaint was in the possession of the appellant as Director of the said company. It was also submitted that the respondents in order to grab the properties of the company in collusion with Late Shri Sualal Garg on the basis of forged documents applied in the office of Registrar of Companies that the appellant has resigned from the company whereas the true fact is that the appellant is still a Director of the company and he has never left the company. It was further submitted that the respondents without any right on the basis of forged documents claimed to be Directors of the said company and they by further colluding with Late Shri Sualal Garg falsely increased the number of shares and without informing the appellant and without his consent illegally allotted shares of the company in their favour. It was also submitted that the acts of increase of capital of the company, issue of additional shares and appointment of new Directors were done so as to remove the appellant from the company and to bring the shares of the appellant to minority which is against the provisions of the Companies Act. In the plaint various other facts were also mentioned and in the end it was prayed that the respondents may be restrained by way of permanent injunction not to interfere in the possession of the appellant of the property owned by the company and also in the shares hold by the appellant. It was also prayed that it may be declared that the act of increasing the number of shares, removal of appellant from the directorship of the company and appointment of respondents as directors of the company is illegal and void against the rights of the appellant. It was also prayed that the transfer of shares in the name of respondent-Dr.Kailash Garg may also be declared illegal and void. Various other reliefs were also sought by the appellant. Respondents No.1 and 3 filed an application under Order 7 Rule 11 CPC on 22.5.2007 stating therein that the reliefs sought by the appellant in the light of the provisions of the Companies Act are beyond the jurisdiction of a Civil Court and the same can be granted by a Company Law Board only. It was also averred that the plaint filed by the appellant does not disclose cause of action and it is liable to be rejected under the provisions of Order 7 Rule 11 CPC. Reply to the application was filed by the appellant with the averment that in the light of the provisions of Section 9 CPC, the reliefs sought by the appellant can be granted by a Civil Court only and, therefore, the trial Court has jurisdiction to entertain the suit filed by the appellant. It was averred that the appellant has not challenged any entries but he has sought various declarations which cannot be granted by Company Law Board. The learned trial Court after hearing both the parties vide order dated 26.9.2007 allowed the application filed by the respondents and rejected the plaint filed by the appellant on the ground that the suit is not entertainable by a Civil Court. Feeling aggrieved, the appellant filed appeal under Section 96 CPC before the learned appellate Court and the same was dismissed vide impugned judgment dated 10.3.2010. Still dissatisfied, the plaintiff-appellant is before this Court by way of this Civil Second Appeal.
3. After hearing both the parties, the appeal was admitted vide order dated 7.2.2011 on the following substantial questions of law:-
(1) Whether the jurisdiction of the civil court to grant reliefs prayed for in the suit filed by the plaintiff-appellant is barred by any provisions of the Company Act?
(2) Whether the plaint filed by the appellant discloses all the necessary facts constituting a cause of action in favour of plaintiff appellant for the purpose of grant of such reliefs to the plaintiff?
4. Assailing the judgment passed by the Courts below, learned counsel for the appellant submitted that for deciding an application under Order 7 Rule 11 CPC only the averments made in the plaint are relevant and they are taken to be entirely correct and at this stage of the proceedings the defence taken or proposed to be taken by the defendant cannot be considered. It was further submitted that it has been averred by the appellant in the plaint that he is a 50% shareholder and promoter-director of the company whereas the other shareholder and promoter-director was his natural father Shri Sualal Garg and in his life time Shri Sualal Garg only was looking after the affairs of the company whereas the respondents on the basis of fabricated and forged documents falsely prepared resignation letter of the appellant and he was also removed from the post of Director of the Company. It was also submitted that after the death of Shri Sualal Garg a return was filed before the Registrar of Companies on 12.12.2007 fasely showing therein that on in an annual general meeting held on 22.9.1997 a decision was taken and respondents Dr.Sanjay Mittal and Dr.Vibha Garg were added as directors of the company with effect from 22.9.1997. It was also submitted that according to the plaint averments all these acts were done on the basis of forged and fabricated documents as Dr.Sanjay Mittal and Dr.Vibha Garg were never appointed as directors of the company as no such meeting was ever held and decision was taken. It was also submitted that plaint averments also show that in the return so filed, an additional sheet of paper was insertted to show that the appellant resigned on 3.8.1998 and he was removed from the post of director with effect from 20.8.1998 and Dr. Sanjay Garg, Dr.Vibha Garg and Dr.Kailash Garg were appointed as directors with effect from 22.9.1998 whereas the said return does not bear the signature of the appellant. It was also submitted that the respondents without any right allotted shares to themselves between 2002 to 2004 and also increased share capital from Rs.5 lacs to Rs.25 lacs with effect from 10.3.1997. According to learned counsel for the appellant, the appellant by means of the present suit has sought declaration in respect of documents dated 22.8.1998, 10.9.1998 and 30.9.1998 to be declared as forged, illegal, void and ineffective against the appellant and he has also sought a declaration to the effect that the appellant still has 50% shareholding in the company. It was also submitted that permanent injunction has also been sought to the effect that the respondents may be restrained from interfering in the possession of the appellant on the land mentioned in the plaint and functioning as director of the company. Attracting attention of the Court towards various provisions of the Indian Companies Act (hereinafter to be referred as the Act) and decisions relied upon by him, it was also submitted that the jurisdiction of a Civil Court should not easily held to be barred by law unless the special statute expressly or impliedly bars the same. It was further submitted that the grievances made and the reliefs sought by the appellant in the present case are of such a nature which relate to general law of the land and not arising for the first time under the provisions of the Act and, therefore, it could not be said that the jurisdiction of Civil Court is expressly or impliedly barred but the learned Courts below without considering the matter in a right perspective has wrongly held that the Civil Court has no jurisdiction to entertain the present suit. It was also submitted that the present suit is in regard to indiviaual rights of the appellant and, therefore, it is maintainable in the Civil Court. So far as the plea that the plaint does not disclose cause of action is concerned, it was submitted that in law the cause of action is a bundle of facts which is to be examined on the basis of averments made in the plaint and for which the whole plaint is to be read. Attracting attention towards various paras of the plaint, it was submitted that it is evident that the plaint discloses the cause of action whereas the first appellate Court has rejected the plaint on this ground also without referring and discussing the averments made in the plaint. It was further submitted that a member of a company has a right to apply under Sections 397 and 398 of the Act before the Company Law Board only when he has a right to apply under Section 399 of the Act whereas in the present case the appellant has no right to make an application under these provisions and, therefore, he has no alternate except to file a suit before a Civil Court. In support of his submissions, learned counsel for the appellant relied upon several decisions.
5. On the other hand, learned counsel for the respondents by supporting the judgment and decree passed by the Courts below submitted that as per averments made in the plaint it is clear that the suit is impliedly barred by various provisions and more particularly under Section 111 (4), 113, 397, 398, 399, 400, 402, 403, 404, 289, 10E, 10F and Section 2 (4) of the Act. It was also submitted that various relevant provisions of the Act clearly show that the Act is in itself a complete code for redressal of any grievances in regard to oppression or mismanagement of any company and these provisions have overriding effect being special law over the general law. It was further submitted that the Company Law Board is still in operation and it has jurisdiction to determine questions relating to rights and liabilities arising under the provisions of the Act and, therefore, the jurisdiction of the Civil Court is impliedly barred. It was also submitted that the trial Court has rightly held that the suit is barred by law as the grievances shown by the appellant and reliefs sought by him can be provided by Company Law Board as constituted under the provisions of the Act and the same have been upheld by the appellate Court. The concurrent finding of facts cannot be challenged in this second appeal and for that reason also the appeal is not maintainable. It was also submitted that the first appellate Court after going through the plaint filed by the appellant has found that no cause of action has arisen in favour of the appellant and the plaint is liable to be rejected on this account also. It was also submitted that in the present case the appellant by clever drafting has tried to show that cause of action has arisen in favour of him whereas a closure reading of the plaint clearly reveals that infact no cause of action has arisen in favour of the appellant and the plaint does not disclose cause of action also. The learned counsel for the respondents also relied upon various decisions.
6. I have considered the submissions made on behalf of the respective parties and also gone through the material made available for my perusal as well as the relevant legal provisions and the case law relied upon by the parties.
7. Order 7 Rule 11 of CPC reads as follows:
11.Rejection of plaint-The plaint shall be rejected in the following cases-
(a) where it does not disclose a cause of action;
(b) where the relief claimed is undervalued, and the plaintiff, on being required by the Court to correct the valuation within a time to be fixed by the Court, fails to do so;
(c) where the relief claimed is properly valued but the plaint is written upon paper insufficiently stamped, and the plaintiff, on being required by the Court to supply the requisite stamp-paper within a time to be fixed by the Court, fails to do so;
(d) where the suit appears from the statement in the plaint to be barred by any law;
(e) where it is not filed in duplicate;
(f) where the plaintiff fails to comply with the provisions of Rule 9.
Provided that the time fixed by the Court for the correction of the valuation or supplying of the requisite stamp-papers shall not be extended unless the Court, for reasons to be recorded, is satisfied that the plaintiff was prevented by any cause of an exceptional nature for correcting the valuation or supplying the requisite stamp-papers, as the case may be, within the time fixed by the Court and that refusal to extend such time would cause grave injustice to the plaintiff.
8. In the present case, the learned lower court has relied upon clauses (a) and (d) of Rule 11.
9. Before dealing with the factual scenario, the well settled legal position relevant for the disposal of this appeal is required to be considered which is as below:
(i) The relevant facts which need to be looked into for deciding an application under Order 7 Rule 11 are the averments made in the plaint. For the purpose of deciding an application under clauses (a) and (d) of Order 7 Rule 11 of the Code, the averments in the plaint are germane; the pleas taken by the defendant in the written statement would be wholly irrelevant at that stage. At this stage of the proceedings the facts stated in the plaint are to be taken at their face value and treated as correct.
(ii) The basic question to be decided while dealing with an application filed under Order 7 Rule 11 of the Code is whether a real cause of action has been set out in the plaint or something purely illusory has been stated with a view to get out of Order 7 Rule 11 of the Code.
(iii) The Court must remember that if 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 of the Code taking care to see that the ground mentioned therein is fulfilled. If clever drafting has created the illusion of a cause of action, it has to be nipped in the bud at the first hearing by examining the party searchingly under Order 10 of the Code.
(iv) For deciding such an application not any particular plea has to be considered and the whole plaint has to be read. Only a part of the plaint cannot be rejected and if no cause of action is disclosed, the plaint as a whole must be rejected. Order 7 Rule 11 applies only where the statement as made in the plaint without any doubt or dispute shows that the suit is barred by any law in force and it does not apply in case of any disputed questions.
(v) Under Section 9 of the Code of Civil Procedure the Civil Courts have jurisdiction to try all suits of civil nature excepting suits of which their cognizance is either expressly or impliedly barred. There is presumption in favour of jurisdiction of a Civil Court and exclusion of the jurisdiction should not be readily inferred unless such exclusion is either explicitly expressed or clearly implied. A law ousting the jurisdiction of the Civil Court should be strictly construed and onus lies on the party who seeks to oust the jurisdiction of the Civil Court to establish the same. A litigant having a grievance of a civil nature has, independently of any statute, a right to institute a suit in a Civil Court and that right cannot be taken away unless the same is either expressly barred or impliedly inferred. The Court would normally lean in favour of construction which would upheld retention of jurisdiction of the Civil Court.
(vi) The general principle regarding implied exclusion of Civil Court's jurisdiction is that whenever a right, not pre-existing in common law, is created by a statute and that statute itself provides a machinery for the enforcement of the right, both the right and remedy having been created uno flatu and a finality is intended to the result of the statutory proceedings, then, even in the absence of an exclusionery provision, the Civil Court's jurisdiction is impliedly barred. If, however, a right pre-existing in common law is recognised by the statute and a new statutory remedy for its enforcement is provided, without expressly excluding the Civil Court's jurisdiction, then both the common law and statutory remedies might become concurrent remedies leaving open an element of election to the persons of inherence. If there was a liability existing at common law and that liability is affirmed by a statute and such statute does not, expressly or by necessary implication, exclude the jurisdiction of the ordinary Civil Court, the affected party can approach the Civil Court. If, in such as case, a statute, while recognizing or affirming such common law, provides for a special remedy different from the one, which existed at common law, there also, unless the statute contains words, which expressly or by necessary implication, exclude the common law remedy, the affected party has the right to elect his remedy either under the statute or from a Civil Court. Where, the statute gives a right, which did not exist in common law, and provides no particular form of remedy, the affected party can pursue his remedy in the Civil Court. However, where a liability, not existing at common law, is created by a statute, which, at the same time, provides for a special and particular remedy for enforcing it, the remedy, provided by the statute, must be followed and it is not open to the party to pursue his remedy in the Civil Court.
(vii) When there is no express provision excluding the jurisdiction of the Civil Courts, such exclusion can be implied only in cases where the right itself is created and machinery for the enforcement of that is also provided by the statute. If the right is traceable to general law of contract or it is a common law right, it can be enforced through Civil Court even though the forum under the statute also will have jurisdiction to enforce that right.
(viii) Section 10 of the Act does not confer any exclusive jurisdiction on the designated Court and the jurisdiction is conferred on the designated Court only by the other provisions of the Act.
(ix) The remedy provided by Sections 397 and 398 of the Act is of a preventive nature so as to end oppression and mismanagement on the part of the controlling shareholders and not to allow its continuance to the detriment of the aggrieved shareholders of the company. The remedy is not intended to enable the aggrieved shareholders to set at naught what has already been done by the controlling shareholders in the management of the company. These sections do not confer any power on the Company Law Board to set aside or interfere with the past or concluded transaction between a company and third party which are no longer continuing wrongs.
(x) There is distinction between individual membership rights and corporate membership rights of shareholders and a shareholder has a right to move the Civil Court where the complaint is of infringement of individual membership rights.
(xi) The jurisdiction of the Civil Court is not barred where allegations made in the plaint by the plaintiff relate to misrepresentation, fraud, failure to furnish details, dishonest or malafide intention.
(xii) Although, in regard to the management and conduct of a company's affairs including important internal matter of administration, the jurisdiction of Civil Court has become more limited, but the power has not at all taken away. Every suit for redressal of individual wrong cannot be considered as merely concerned with matters of internal management.
(xiii) A resolution which is ultra-virus or illegal or is a fraud on the minority or is not bonafide or for the benefit of the company as a whole or is intended to discreminate between the majority shareholders and the minority shareholders, is illegal and can be questioned by a separate action in the Civil Court.
(ivx) If there is allegation of misrepresentation, fraud, failure to furnish details, dishonest or malafide intention, suppression of material facts, removing of the plaintiff from the post of Director by a resolution etc. which are disputed questions of facts which have to be necessarily determined and adjudicated only by a Civil Court after letting in oral and documentary evidence.
(vx) The Companies Act is essentially regulatory in nature and the general right of suit has not been taken away merely because of some regulatory provisions. The jurisdiction of the Civil Court is impliedly barred in relation to the question of oppression and mismanagement as covered under Sections 397 and 398 of the Act and for such matters only Company Law Board has jurisdiction. These sections provide for enforcement of the rights of the minority shareholder and they contain a complete body of code in themselves and jurisdiction of Civil Court is implied barred but that does not take away the shareholder's right to approach the Civil Court for remedy of such grievances, which are contractual in nature.
10. Now, it will be useful to refer in brief the relevant averments by the appellant in the plaint which are as below:-
(i) The company was constituted in the year 1991 of which the appellant and his natural father Shri Sualal Garg were promoters-directors each having 50% shares in it. At that time both had 10 shares of the value of Rs.100/- each.
(ii) The first general meeting was held on 22.9.1992 and the company was consituted as a family company. The appellant was given in adoption to Shri Kanhaiyalal but soon after the adoption Shri Kanhaiyalal died and natural father of appellant Shri Sualal Garg took care of the appellant and he was wholly dependent upon him.
(iii) In the year 2006 Shri Sualal Garg died and respondents tried to dispossess the appellant from the land of the company and upon inquiry being made by the appellant it was revealed that on the basis of forged and fabricated documents the respondents are claiming themselves to be directors of the company and also that the appellant has resigned from the post of director of the company whereas the true fact that the appellant is still a director and he has never resigned.
(iv) Although, the company was not functional and it required no further money for its function but even then the respondents and Late Shri Sualal Garg falsely increased the number of shares and without informing the appellant and without his permission and consent Late Shri Sualal Garg and respondent Dr.Kailash Garg illegally alloted shares in their names on the basis of fabricated and forged documents as these documents do not bear signature of appellant.
(v) That all these acts were done by Late Shri Sualal Garg and respondents for the sole purpose to remove the appellant from the company and to bring his shares into minority which is against the provisions of the Act whereas from the very beginning the appellant is holder of 50% shares of the company.
(vi) That according to provisions of the Act, to increase the share capital of a company and to further allot shares thereof it is essential that a notice be issued to convene the meeting of the directors of the company and to pass a resolution in the meeting convened for that purpose but in the present case such procedure was not followed and without giving notice to the appellant and convening meeting of directors the share capital was increased and further shares were allotted to late Shri Garg and respondent-Dr.Kailash Garg.
(vii) According to respondents, the appellant was removed from the directorship of the company on 20.8.1998 whereas the return filed on 30.9.1998 bears signature of appellant also which is a clear indication of the fact that till then appellant was one of the directors and the claim of the respondents is false.
11. In the suit the reliefs of various kinds of declaration and permanent injunction were sought by the appellant. It was prayed that the respondents may be restrained by way of permanent injunction not to interfere in the possession of the company's property of which the appellant is 50% shareholder and also director of the same. It was also prayed that the respondents may be restrained not to enter in the property of the company and not to operate the company's account. It was further prayed that it may be declared that the number of shares have illegally been increased and the respondents have illegally been appointed as directors of the company. It was also prayed that it may be declared that the allotment of shares in favour of respondent-Dr.Kailash Garg is illegal and against law. Removal of appellant from the post of director of the company on the basis of fabricated and forged resignation letter dated 20.8.1998 may also be declared illegal, void and ineffective to the rights of the appellant and all acts done by the company after that date may also be declared illegal and void.
12. On consideration of the submissions made on behalf of the respective parties and also going through the record made available for my perusal as well as the relevant legal provisions and the prevalent legal position, I am of the view that grave illegality and perversity has been committed by the Courts below in rejecting the plaint filed by the appellant. From the facts and circumstances of the case it cannot be said that the suit filed by the appellant is not entertainable by a Civil Court and he should have approached the Company Law Board. It can not also be said that the plaint does not disclose necessary facts constituting a cause of action in favour of the appellant for the purpose of grant of reliefs claimed by him. The well settled legal position is that for deciding an application filed under Order 7 Rule 11 CPC only the averments made in the plaint are relevant and they are to be treated as correct and the contention taken by the defendant in the form of written statement or otherwise cannot be considered at this stage of the proceedings. The principle regarding exclusion of jurisdiction of a Civil Court is also well settled. When there is no express provision excluding the jurisdiction of the Civil Courts such exclusion can be implied only in cases where the right itself is created and machinery for the enforcement of that is also provided by the statute. If the right is traceable to general law of contract or it is a common law right, it can be enforced through Civil Court even though the forum under the statute also will have jurisdiction to enforce that right. In the present case, it is an admitted fact that the Companies Act does not expressly exclude the jurisdiction of the Civil Court. Looking to the averments made in the plaint and relief sought by the appellant it cannot be said that the jurisdiction of the Civil Court is impliedly barred by the reason that rights and the reliefs claimed by the appellant are infact traceable to general law of contract or to the common law which can be enforced through Civil Court also even though if for the sake of arguments it is admitted that the forum i.e. the Company Law Board constituted under the provisions of the the Companies Act also have jurisdiction to enforce the reliefs claimed by the plaintiff. It has been claimed by the appellant in the suit that he was a 50% shareholder and Promoter-Director of the Company and he still have the same position but the respondents in collusion with late Shri Sualal Garg on the basis of forged and fabricated documents prepared a false resignation letter of the appellant and removed him from the post of Director of the Company and they without any right in the manner stated in the plaint increased the share capital of the Company and appointed and declared them Directors of the Company. As already stated, the appellant has sought various kinds of injunctions and declarations in the present suit. I am in agreement with the submissions made on behalf of the appellant that the rights and reliefs claimed by the appellant cannot be said to be created for the first time under the provisions of the Companies Act but they are already provided under the general law of the contract. In these circumstances if the appellant has chosen jurisdiction of the Civil Court, he cannot be compelled to sought the help of forum created under the provisions of the Companies Act as he has an option to approach the Civil Court. Otherwise also, according to relevant legal provisions of the Companies Act an application to Company Law Board for relief in cases of oppression under Section 397 and application for relief in cases of mismanagement can be filed only by the person having right under the provisions of Section 399 of the Act. In the present case, the plaintiff-appellant alone as an individual has made his grievances, it cannot be said that he has a right to approach the Company Law Board for the reliefs sought by him and, therefore, the only option for him was to approach the Civil Court. So far as non-disclosure of cause of action in the plaint filed by the appellant is concerned, it cannot be said that the plaint does not disclose cause of action. Various paras of the plaint in very clear terms make out the necessary averments for grant of reliefs of permanent injunction and the declarations sought by the appellant. Both the Courts below without considering the matter in a right perspective have wrongly held that the suit is not entertainable by a Civil Court and the plaint filed by the appellant does not disclose a cause of action.
13. The net result of all this discussion is that the judgments and decrees passed by the Courts are liable to be set aside and the trial Court is required to be directed to restore the suit to its original number and proceed further in accordance with law.
Consequently, this civil second appeal filed by the plaintiff-appellant is allowed and the judgment and decree dated 10.3.2010 passed by the Additional District Judge (Fast Track) No.5, Jaipur City, Jaipur in Civil Regular Appeal No.19/2009 and the judgment and decree dated 26.9.2007 passed by the trial Court i.e. Additional Civil Judge (Junior Division) No.2, Jaipur City, Jaipur in Civil Suit No.402/2007 are set aside and as a consequence of that the application filed under Order 7 Rule 11 CPC is rejected. The trial Court i.e. the Additional Civil Judge (Junior Division) No.2, Jaipur City, Jaipur is directed to restore the Civil Suit No.402/2007 to its original number and to proceed further from the stage previous to the filing of the application under Order 7 Rule 11 CPC in accordance with law. Both the parties are directed to appear before the trial Court on 25.07.2012. The record alongwith the copy of this judgment be sent to both the Courts below immediately.
(PRASHANT KUMAR AGARWAL), J teekam All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.
Teekam Khanchandani Private Secretary