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Section 59 of Companies Act, 2013: A Question of Jurisdictions

Ubi jus ibi remedium-

where there is a right, there is remedy.

Right and remedy are two sides of same coin and they cannot be separated from each other.
The term jurisdiction has not been defined in law. It is derived from the latin terms- juris & dicto which means – I speak by the law.

If the court has no inherent jurisdiction, neither acquiescence nor waiver nor estoppel can create it. A Defect of jurisdiction goes to the root and such a fundamental defect cannot be cured by consent of parties and the judgment or order passed by such a court is null and void irrespective of fact that how certain and technically correct and thus validity of it can be challenged at any stage.[1]

A decree passed by a court without jurisdiction is a coram non judice

Code of Civil Procedure, 1908

Section 9 of code of civil procedure, 1908:

The Court shall have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.
There are 2 conditions
  1. The suit must be of a civil nature
  2. The cognizance of such a suit should not have been expressly or impliedly barred.

The word civil is not defined in code but it means – to private rights and remedies as different from political, criminal. The word nature refers to quality, identity or essentials. It is thus wider in content.

The term civil nature is wider than civil proceedings. The term suit of civil nature would cover the private rights and obligations of a citizen. Political and religious questions are not covered by it. A suit in which principal question is related to caste or religion is not a suit of civil nature though it is a civil suit. But if the principal question is right to property or an office and adjudication incidentally involves the determination of question relating to caste, religious rights, it doesn’t ceased to be a suit of civil nature and jurisdiction of civil court would not be barred.

The expansive nature of section 9 is demonstrated by use of phraseology both positive and negative. The earlier part opens the door widely whereas latter debars entry only to those which are expressly or impliedly barred. The two explanations clearly expanding the operation of section as to religious matters where right to property or office is involved. The word shall , all suits of civil
nature cast an obligation on court to exercise jurisdiction for enforcement of rights. [2]


Principles with regard to exclusion of jurisdiction of civil court[3]-

  1. Where a statute gives finality to orders of special tribunals, the civil court jurisdiction must be held to be excluded if the remedy provided is adequate remedy and is same as what a civil court otherwise would do.

    However, even if finality is given such provisions cannot exclude the jurisdiction of civil court if such provisions are not in compliance or such tribunal has not acted in conformity with fundamental principles of judicial procedure.
     
  2. Where there is an express bar, an examination of scheme of particular act may be relevant but not conclusive to decide jurisdiction of civil court. However, where there is no express, the examination of remedies and scheme of particular act become conclusive to decide jurisdiction of civil court.
     
  3. Where the particular act contains no machinery, the suit would not be barred.
     
  4. Exclusion of jurisdiction of civil court should be strictly construed and every presumption should be made in favor of a civil court.
     
The question came before Bombay high court as to what should be done where in a suit before civil court an issue arise to settle , decide or deal where the jurisdiction of civil court is ousted. It was held that in such a situation, the civil court should be stayed and parties should referred the question to be decided by competent authority. Further the decision of a competent authority is binding upon civil court and dispose the suit accordingly. [4]

Companies Act, 2013

Section 59 of companies act, 2013

  1. If the name of any person is, without sufficient cause, entered in the register of members of a company, or after 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, the Securities and Exchange Board of India Act, 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.

Section 430 of companies act, 2013

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.

Companies Act, 1956

Section 111(4) - (5) of Companies act, 1956-

(4) If- (a) the name of any person-
  1. is, without sufficient cause, entered in the register of members of a company, or]
  2. after having been entered in the register, is, without sufficient cause, omitted therefrom; or
(b) 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 including a refusal under sub-section (1), the person aggrieved, or any member of the company, or the company, may apply to the Tribunal for rectification of the register.

(5) The Tribunal, while dealing with an appeal preferred under sub­section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order-
  1. direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or
  2. direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

Section 111A(3) of Companies act, 1956

(3) The Tribunal may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records.

Analysis
A reading of the above provisions makes it clear that, the extent of the NCLT's jurisdiction under the 2013 Act qua rectification claims is substantially the same as what was previously conferred under the 1956 Act to the CLB. Under both enactments, what is conferred is only the power of  rectification . This means that the corresponding ouster of civil court's jurisdiction will also be of identical scope.

The only difference is that under the 1956 Act, the ouster was an implied one as held in Ammonia Supplies whilst under the 2013 Act, the ouster was an express one. The express or implied nature of a bar on jurisdiction cannot really affect the width of such bar. Section 430 is thus analytically irrelevant since it does nothing new other than convert an implied bar on civil court jurisdiction into an express one.

Application for ratification in register of member are usually preferred by persons who claim to be members of a company and whose membership (such as name, extent of shareholding held, etc.) is not correctly filed in the register of members that is statutorily required to be maintained by all companies.

Since membership carries with it several important rights such as voting, right to receive dividend, etc., actions for rectification are usually hotly contested and seriously pursued by claimants. Under the Companies Act, 1956 (the  1956 Act ), prior to 1991, such applications for rectification were initially filed under Section 155 before the  Court  as defined under Section 2(11) r/w. Section 10 (the  Company Court ).

Section 155 was repealed by the Companies (Amendment) Act, 1988 w.e.f. 31.05.1991) and after 1991, such applications in respect of private companies and deemed public companies were filed under Section 111 before the Company Law Board (the  CLB ). In 1997, Section 111A was introduced with regard to rectification of registers in public companies as well. Section 59 of the Companies Act, 2013 (the  2013 Act ) now confers the power of rectification of the members register on the National Company Law Tribunal ( NCLT ).

The governing precedent for the nature and scope of rectification claims under the 1956 Act was the Supreme Court's judgment in Ammonia Supplies. In Ammonia Supplies, the Supreme Court was considering a pre-1991 case under Section 155 before the Company Court, but the principles laid down there largely held the field even with regard to post-1991 actions before the Company Law Board under Sections 111 and 111A.

The Court held that actions for rectification under Section 155 were proceedings of a summary nature, and that the Company Court which was statutorily conferred with jurisdiction to decide such actions would have exclusive jurisdiction to do so, and also to decide  any question raised within the peripheral field of rectification.

There was held to be an  implied bar  on the plenary jurisdiction of civil courts to adjudicate rectification claims. However, where an action for rectification was  based on some seriously disputed civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member , the Company Court would have the  discretion  to send the party seek his relief before a  civil court first for adjudication of such facts.

In other words, Ammonia Supplies held that:  the court under it has discretion to find whether the dispute raised are really for rectification or is of such a nature, unless decided first it would not come within the purview of rectification. The word 'rectification' itself connotes some error which has crept in requiring correction.

Error would only mean everything as required under the law has been done yet by some mistake the name is either committed or wrongly recorded in the register of the Company.

As per Ammonia Supplies, the Company Court considering a rectification claim should examine the materials:

to see whether even prima facie what is said is complicated question or not. Even dispute of fraud, if by bare perusal of the document or what is apparent on the face of it on comparison of any disputed signature with that of the admitted signature the Court is able to conclude no fraud, then it should proceed to decide the matter and not reject it only because fraud is stated. [5]

In Khemka, the Supreme Court was considering an SLP that arose from proceedings under Section 111A of the 1956 Act. A claimant had approached the CLB seeking rectification. The CLB had rejected a preliminary plea of limitation and decided to hear the matter on merits.

The CLB's order was challenged before the Madras High Court. The High Court allowed the challenge, reversed the decision of the CLB, and in effect, relegated the parties to a civil suit. This was challenged before the Supreme Court. It appears that the matter was not properly contested in the Supreme Court since the judgment records that no counsel appeared for the Respondent.

The Supreme Court, in Khemka, reversed the High Court's order, and in a brief, cryptic judgment, held as follows:  Learned Counsel for the Appellants has drawn our attention to the view expressed in Ammonia Supplies Corporation P. Ltd. v. Modern Plastic Containers P. Ltd. MANU/SC/0585/1998: (1998) 7 SCC 1053, 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 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. Learned Counsel has also drawn our attention to Section 430 of the Act, which reads as under: The effect of the aforesaid provision is that in matters in respect of which power has been conferred on the National Company Law Tribunal, the jurisdiction of the civil court is completely barred.

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 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 appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded[6]….

Conflict of Judgments
In its heavy reliance on Section 430 of the 2013 Act, the Khemka judgment puts the cart before the horse. Section 430 expressly bars the jurisdiction of civil courts  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.  A plain reading makes it manifestly clear that the civil court's jurisdiction is diminished only to the extent that the NCLT has been correspondingly  empowered .

The extent of civil court ouster is directly proportional to extent of conferment of jurisdiction on the NCLT. Thus, the starting point of inquiry in Khemka ought to have been: does the 2013 Act confer any wider jurisdiction on the NCLTs than what was previously conferred under the 1956 Act? The short and simple answer to this question is:  No, it does not. In fact, the 2013 Act confers less jurisdiction on the NCLT than what was conferred on the CLB under the 1956 Act.  the Ammonia Supplies principle of rerouting parties to a civil court in complicated claims was two-fold:
  1. the summary nature of the proceedings in rectification actions; and
  2. the limited meaning of the word rectification.

The Supreme Court, in Khemka, has not explained how either of these considerations have changed under the 2013 Act. Under Section 59 of the 2013 Act, the NCLTs have been empowered to decide only claims for  rectification , just like it was in the 1956 Act.  Rectification  has a special restricted meaning as noted in Ammonia Supplies.

At the cost of repetition, the limited meaning of  rectification  was explained in Ammonia Supplies as follows:
 The word 'rectification' itself connotes some error which has crept in requiring correction. Error would only mean everything as required under the law has been done yet by some mistake the name is either committed or wrongly recorded in the register of the Company .

It is this restrictive meaning of  rectification  that led the court in Ammonia Supplies to distinguish between that are  really for rectification  and claims  of such a nature, unless decided first it would not come within the purview of rectification .

It is latter case for rectification that could be re-routed to a civil court. There is nothing to suggest in the wording of Section 59 that the meaning of  rectification  would be any different under the 2013 Act. There is also nothing to suggest that the proceedings before the NCLT in Section 59 proceedings would be anything but summary in nature. The Khemka judgment simply fails to address these questions.

Conclusion
As per the principle underlying by Section 9 of code of civil procedure, 1908, the jurisdiction of a civil court cannot be ousted unless expressly or impliedly barred. Apart from that, it is a well settled principle that even if jurisdiction is barred , the same can still be lie before civil court if it is proved that the remedy is an inadequate remedy and is not according to principles of natural justice.

On path of same, section 430 of companies act, 2013 has been drafted. However, in order to understand section 430, the reference needs to be made both to section 9 of code of civil procedure as well as corresponding provisions of companies act, 1956. Section 430 of new companies act has done nothing but convert the implied created by old companies act into an express bar. It is pertinent to note that per se express bar is not a reason to oust the jurisdiction of a civil court.

National company law tribunal cannot be imputed to adjudicate the questions which are incidental to main issue. It is submitted that it is a well settled principle that such questions are to be decided by competent authority and further the court/NCLT has to decide the main issue on basis of findings of competent authority on such incidental question.

Hence, to read section 430 of companies act, 2013 as blanket approval to NCLT to decide all and every claim out of section 59 of companies act, 2013 appear as to read more than what was imputed by legislature on said provision.

End-Notes:
  1. A.R Antulay v. R.s Nayak
  2. PMA Metropolitan v. Muran Marmarthoma
  3. Dhulabhai v. State of Madhya Pradesh
  4. Dhondi Tukaram vs Dadoo Piraji And Ors
  5. Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers
    (1998) 7 SCC 105
  6. Shashi Prakash Khemka v. NEPC Micon (2019) SCC OnLine SC 223a
Disclaimer
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of the Indian government. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of any Indian government State.

Written By: Shubham Budhiraja is a Practicing company secretary and founder of Budhiraja & co. Further, he is a Second Year Law student at faculty of law, University of Delhi and a Para Legal volunteer with Delhi State Legal Service authority and is an active Participant in Moot Court society of his college.
Ph no: +919654055315
Email: [email protected], [email protected]

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