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Nava Samaj Ltd. and ors. Vs. Civil Judge, Class 1 and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Petn. No. 101 of 1965
Judge
Reported inAIR1966MP286
ActsCompanies Act, 1956 - Sections 2(11), 10, 398 and 399; Code of Civil Procedure (CPC) , 1908 - Sections 9 and 115 - Order 7, Rule 10
AppellantNava Samaj Ltd. and ors.
RespondentCivil Judge, Class 1 and ors.
Appellant AdvocateM.N. Phadke, ;V.S. Pandit, ;M.W. Puranik and ;K.K. Adhikari, Advs.
Respondent AdvocateD.B. Baghel and ;G.C. Koshal, Advs. for Respondent No. 2
DispositionPetition allowed
Cases ReferredColaba Land and Mill Co. v. V. I. Corporation
Excerpt:
- - the company, however, applied to the central government on 26th march 1956 under section 89(4) of the act for being exempted from the requirements of sub-sections (1), (2) and (3) of section 89. according to the petitioners, the central government, after making necessary enquiries as to whether the grant of exemption would or would not be in the public interest or in the interest of the company required the company to assign the deferred voting rights as well as the managing agent rights to independent trustees of 'high eminence and impartiality' accordingly, the nagpur times trust was brought into existence by a deed, dated the 9th may 1957, and the trustees thereunder were given the managing agency and deferred voting rights. 2 shri hajarimal has complained in his plaint that the.....dixit, c.j. 1. this application under article 227 of the constitution and sections 115 and 151 of the c. p. c. for the issue of a writ of certiorari for quashing an order, dated the 18th february 1965 of the civil judge, first class, rajnandgaon, holding that his court has jurisdiction to try a suit filed by the opponent no. 2, shri hajarimal, and for a direction prohibiting the civil court from proceeding with the suit or any application made therein, has been made in the following circumstances.2. the petitioner no. 1, the nava samaj ltd. (hereinafter referred to as the company) is a public limited company incorporated under the indian companies act having its registered office at nagpur in maharashtra state. the main object of the company, as mentioned in the memorandum, is the.....
Judgment:

Dixit, C.J.

1. This application under Article 227 of the Constitution and Sections 115 and 151 of the C. P. C. for the issue of a writ of certiorari for quashing an order, dated the 18th February 1965 of the Civil Judge, First Class, Rajnandgaon, holding that his Court has jurisdiction to try a suit filed by the opponent No. 2, Shri Hajarimal, and for a direction prohibiting the civil Court from proceeding with the suit or any application made therein, has been made in the following circumstances.

2. The petitioner No. 1, the Nava Samaj Ltd. (hereinafter referred to as the Company) is a public limited company incorporated under the Indian Companies Act having its registered office at Nagpur in Maharashtra State. The main object of the Company, as mentioned in the Memorandum, is the printing and publishing of a news-paper called 'Nagpur Times' at Nagpur. The second petitioner, the Nagpur Times Trust, was brought into existence under a trust deed, dated the 9th May 1957 and is the managing agent of the Nava Samaj Ltd. The third and fourth petitioner, Shri K. K. Thakur and Dr. M. B. Niyogi, are the trustees of the Nagpur Times Trust. The fifth petitioner is the Chairman of the Board of Directors of the Nava Samaj Ltd. The Company has an authorised capital of Rs. 10 lacs divided into (a) 38,000 ordinary shares of Rs. 25 each, and (b) 25,000 deferred shares of Rs. 2 each. Out of the authorised capital, the total subscribed and paid-up capital of the Company is (a) 31,527 ordinary shares of Rs. 25 each of the total value of Rs. 7,88,175, and (b) 25,000 deferred shares of Rs. 2 each of the total value of Rs. 50,000. The deferred shares of Rs. 2 each and the ordinary shares carried equal voting rights. The deferred shares were held by five share-holders. On 22nd August 1947 the Company entered into an agreement of managing agency with 'Nava Samaj Pravartan', a partnership firm in which two of the five deferred share-holders were partners. This managing agency agreement was for a period of twenty years.

3. On the coming into force of the Companies Act, 1956, (hereinafter referred to as the Act), the Company was required under Sections 87 and 89 of the Act to bring about equality of voting rights between ordinary shares and deferred shares within one year of the commencement of the Act. The Company, however, applied to the Central Government on 26th March 1956 under Section 89(4) of the Act for being exempted from the requirements of Sub-sections (1), (2) and (3) of Section 89. According to the petitioners, the Central Government, after making necessary enquiries as to whether the grant of exemption would or would not be in the public interest or in the interest of the Company required the Company to assign the deferred voting rights as well as the managing agent rights to independent trustees of 'high eminence and impartiality' Accordingly, the Nagpur Times Trust was brought into existence by a deed, dated the 9th May 1957, and the trustees thereunder were given the managing agency and deferred voting rights. A new managing agency agreement was thereafter executed in favour of the trustees on 30th June 1959. Under this agreement, the term of the managing agency was for a period not exceeding five years with effect from 15th August 1960.

4. On 29th July 1957, the Central Government made an order under Section 89(4) of the Act exempting the Company permanently from the requirements of Sub-sections (1), (2) and (3) of Section 89 in respect of the 25,000 deferred shares of Rs. 2 each. It appears that some persons moved the Central Government for withdrawal of this exemption. On 24th March 1962 the Central Government made another order purporting to be under Section 89(4) rescinding its earlier order, dated the 29th July 1957 granting exemption. Thereupon the petitioner-Company filed an application under Article 226 in the Bombay High Court (Nagpur Bench) challenging the validity of the order of the Central Government, dated the 24th March 1962 withdrawing the exemption granted on 29th July 1957. That petition was allowed by the Bombay High Court by its judgment, dated 9/10th December 1964. The Bombay High Court declared that the order of revocation of exemption, dated the 24th March 1962 was invalid and of no effect and issued a writ of mandamus against the Registrar of Companies. Bombay and the Union of India restraining them from enforcing the order of revocation The applicants state that in the proceedings under Article 226 initiated in the High Court of Bombay, the third respondent, Shri Vidya Charan Shukla, intervened and opposed the petition of the Company for the quashing of the order of the Central Government rescinding its earlier order granting exemption.

Thereafter, as stated by the petitioners and admitted by Shri Vidya Charan Shukla in his return to this petition, an application under Article 226 of the Constitution was filed by him and other persons in the Punjab High Court on 19th January 1965 challenging the validity of the order of the Central Government, dated the 29th July 1957 granting exemption under Section 89(4) of the Act and praying for the issue of a writ of certiorari for quashing that order. This petition was admitted by a Division Bench of the Punjab High Court consisting of Falshaw, C. J. and Mehar Singh, J. It appears that Shri Vidya Charan Shukla and other petitioners to the application under Article 226 filed in the Punjab High Court on 19th January 1965 applied for an order staying the annual general meeting of the company, which was scheduled to be held on 22nd January 1965. On this application, the Division Bench of the Punjab High Court made an order on 20tb January 1985 in the following terms-

the disproportionate voting rights of deferred share-holders will not be used with regard to items 4 and 5 in the Agenda of the Meeting and on this condition the Meeting may be held as arranged on 22-1-1965. The Company is to be impleaded and the petition fixed for hearing (D. B.) on an agreed date in the week commencing 22-2-1965'

As admitted by Shri Vidya Charan Shukla in his return, the application under Article 226 of the Constitution filed by him and other persons in the Punjab High Court on 19th January 1965 was withdrawn by them on 8th March 1965. Thereafter Shri Vidya Charan Shukla and other persons filed a second petition in the Punjab High Court under Article 226 of the Constitution on 15th March 1965 praying for the issue of a writ of certiorari for quashing the order, dated the 29th July 1957 granting exemption under Section 89(4) of the Act. Learned counsel for the petitioners informed us that the second petition filed in the Punjab High Court is still pending.

5. During the pendency of the first application under Article 226 of the Constitution filed by Shri Vidya Charan Shukla and others in the Punjab High Court and on the next day following the day on which the Division Bench of the Punjab High Court made a conditional stay order on 20th January 1965 and one day before the annual general meeting of the Company was to be held on 22nd January 1965, the respondent No. 2, Shri Hajarimal, filed a suit in the Court of the Civil Judge, First Class, Rajnandgaon, against the present petitioners claiming a declaration that the petitioners Nos. 2, 3 and 4 had ceased to hold office of managing agents of Company, and a permanent injunction restraining them, their agents and servants from acting in any manner directly or indirectly as managing agents of the Company, and/or in any manner so holding out themselves. In that suit, Shri Hajarimal has also claimed the relief of permanent injunction restraining the petitioners Nos. 2. 3 and 4, their representatives and proxies from exercising voting rights under the deferred shares in respect of any resolution before any general meeting of the Company, including the one convened for 22nd January 1965, or any adjourned meeting thereof, 'save and except in accordance with the provision of Section 87 read with Section 89 of the Companies Act, 1956'. He has also prayed that the defendants in the suit be restrained by a permanent injunction from sponsoring, supporting, putting to vote or passing resolutions specified in items 4 and 5 of the agenda of the annual general meeting of the Company convened for 22nd January 1965 or any subsequent meeting thereto. The plaintiff-respondent No. 2 also claimed an interim injunction, The petitioners have alleged that the plaintiff, Hajarimal has filed the suit in collaboration with Shri Vidva Charan Shukla and at his instance.

The teamed Civil Judge made an ex parts interim injunction on 21st January 1965 restraining the petitioner No 5, Shri G. M. Balraj, Chairman of the Board of Director 'from exercising the voting rights under the deferred shares in respect of any resolution before any general meeting of the 1st defendant company including the meeting convened for 22-1-65 and except in accordance with the provisions of the Section 87 read with Section 89 of the Companies Act 1956.' The order of injunction also prohibited the petitioner Shri G. M. Balraj 'from sponsoring, supporting, putting to vote or passing resolution being items 4 and 5 of the Agenda of the Annual General Meeting of the 1st defendant convened for 22-1-65.' On receipt of the order of injunction, the petitioners filed an application in the Civil Judge's Court on 25th January 1965 contending that the Court had no jurisdiction to entertain the plaintiff Shri Hajarimal's suit and to pass the interim order of injunction that it did. This objection of the defendant-petitioners was overruled by the learned Civil Judge by an order recorded on 18th February 1965.

6. Before dealing with the contention of the petitioners that the learned Civil Judge, Rajnandgaon, has no jurisdiction to entertain and try the suit filed by Shri Hajarimal, it is necessary to refer to the material averments made in the plaint. The plaintiff claims himself to be the holder of 25 ordinary shares of the Company. According to his address registered with the Company, he is a resident of Rajnandgaon. In Para. 22 of the plaint, he has stated that his suit is a representative suit and in the title he has said that the suit is on behalf of himself and 'on behalf of all the equity share-holders of the Nava Samaj Ltd., other than share-holders supporting defendants 2, 3 and 4 (that is, petitioners Nos. 2, 3 and 4 before us) and represented by 5th defendant'. He received a notice of the annual general meeting convened for 22nd January 1965 on or about 31st December 1964. The respondent No. 2 Shri Hajarimal has complained in his plaint that the Company never placed before any general meeting me fact that it had applied to the Central Government for exemption under Section 89(4) of the Act and that the exemption was first granted and then revoked. Then he says that the order, dated the 29th July 1957 of the Central Government granting exemption, which revived as a result of the judgment of the Bombay High Court, is without jurisdiction, null and void, and violative of his fundamental rights under Articles 14, 19(1) (f) and (g) and 31(g) of the Constitution; and that the Central Government granted the exemption 'in gross violation of the principles of natural justice' and without hearing the ordinary share-holders.

In his suit, the respondent No. 2 has questioned the validity of the notice of the annual general meeting fixed for 22nd January 1965 only in regard to items 4 and 5 of the agenda of that meeting. Item 4 of the agenda dealt with the passing of a resolution with regard to the approval and confirmation of the appointment of the petitioner Shri K. K. Thakur, Managing Trustee of the Nagpur Times Trust, who completed 68 years of age on 16th April 1964, as an ex officio Director, and for a declaration that the age-limit prescribed by Section 280 of the Act shall not apply to him. Item 5 of the agenda made a mention about the passing of a resolution under Section 326 of the Act for reappointment as managing agents of the Company for a further period of five years of the petitioners Dr. Niyogi and Shri K. K. Thakur, and Shri Badkas, trustees of the Nagpur Times Trust. The averment of Shri Hajarimal is that the notice of the meeting scheduled for 22nd January 1965, which he received, and the explanatory note attached to it under Section 173 of me Act are vitiated in regard to items 4 and 5 of the agenda for the reason that they are 'fraudulent, mischievous and tricky'. On this point, Para. 13 of the plaint concludes thus-

'The said notice and the said explanatory statement contain several suppressions of material facts and are a fraudulent attempt on the part of the directors and managing agents of the 1st defendant-Company to deceive the share-holders of the 1st defendant-Company and have the said resolutions passed without informing the share-holders of the 1st defendant-Company as to their rights in respect thereof as also to give particulars of facts which are relevant for the purposes of the said resolution ' The plaintiff then, after narrating some of the 'suppressions' found by him in the notice of the meeting and the explanatory note under Section 173 of the Act, proceeds to say- '..... .the majority ordinary share-holders of the said Company have lost faith and confidence in the Managing Agents of the said Company. At the Annual General Meeting of the Company held on or about 22nd February 1960, the Managing Agents could secure 28,313 votes as against 19,924 votes cast against the management. Out of the said 28,313 votes which were cast in favour of the management, 25,000 votes were on account of disproportionate voting rights resulting from the illegal weightage in favour of the deferred share-holders. If such a weightage is ignored, it will be seen that out of the total 48,237 votes cast at the said General Meeting the Managing Agents could secure only 3,313 votes whereas 19,924 votes were cast against their management. The illegal weightage which is sought to be continued by virtue of the said illegal order of Exemption, dated 29th July 1957, has converted a minority into a majority in the said Company, resulting in grave prejudice to the rights of the ordinary shareholders. The said weightage being illegal must be ignored and thus the said resolution must be deemed to have (not ?) been duly passed by the said meeting. The 2nd defendants have thus ceased to hold office but are illegally continuing as the Managing Agents of the 1st defendant company. The plaintiff has, therefore, become entitled to declaration that the 2nd defendants have ceased to be the Managing Agents of the 1st defendant-Company and the said resolutions being items Nos. 4 and 5, are incompetent and invalid and cannot be considered at the ensuing general meeting convened on 22nd January 1985.'

It has also been alleged by the plaintiff-respondent Shri Hajarimal that the Managing Agents of the Company must be deemed to have ceased to hold their office for the reason that the approval of the Central Government to the reconstitution of the managing agents and to the variation in the terms of the managing agency was not obtained. He also complained that the exercise by the Managing Agents of the deferred share voting rights contrary to Sections 87 and 89 of the Act is illegal and constitutes a gross violation of the rights of the ordinary share-holders. On the above allegations, the respondent Shri Hajarimal has claimed the several reliefs adverted to earlier.

7. It was argued by Shri Phadke, learned counsel for the applicants that the subject-matter of the suit fifed by Shri Hajarimal relates solely to the voting rights of certain class of share-holders and the validity and continuance of the managing agency agreement; that under the Companies Act the 'Company Court', as defined by Section 10, has exclusive jurisdiction to deal with matters involved in Shri Hajarimal's suit; that the Court of the Civil Judge, First Class, Rajnandgaon, is not a Court falling under Section 10 of the Act; and that consequently that Court has no jurisdiction to entertain and try the plaintiff-Shri Hajarimal's suit, much less to issue an order of interim injunction. It was also submitted that even if it be assumed that a civil suit of the type filed by Shri Hajarimal could be filed in a Court other than a Court specified in Section 10 of the Act, still the Court at Rajnandgaon has no Jurisdiction to entertain the respondent No. 2's suit and to issue an order of injunction under Order 39, Rule 1, C.P.C. against the defendant petitioners inasmuch as none of them resided Within the territorial jurisdiction of that Court and no part of the cause of action arose within the jurisdiction of the said Court.

8. The principal point involved in this case is one of construction and effect of Sections 2(11) and 10 of the Act and of the application of those provisions to the plaintiff Shri Hajarimal's claim as disclosed by the averments contained in the plaint. Section 2(11) defines the expression 'the Court' thus-

' '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, a Presidency Magistrate, having jurisdiction to try such offence;'

Section 10, in so far as it is material here, is as follows:--

'10. (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.

* * * *'

The plain effect of the above provisions is that the power and jurisdiction to deal with such matters as are covered by the Act itself has been given to the Courts specified in Section 10(1) with respect to any matter relating to a company, other than an offence against the Act. In regard to any offence against the Act, the Court means 'the Court' as defined in Section 2(11)(b). The decisions in British India Corporation Ltd. v.Robert Menzies, AIR 1938 All 568: ILR 58 All 988, Harish Chandra v. Kavindra Narain Sinha, AIR 1936 All 830, In re: Aryya Insurance Co. Ltd. AIR 1937 Cal 81, Nawabshah Electric Supply Co. Ltd. v. Hariram S. Ahuja, AIR 1947 Sind 31 and Sree Krishna Jute Mills Ltd., Ellore v. Krishna Rao, AIR 1947 Mad 322, given with reference to a somewhat analogous provision contained in Section 3 of the Indian Companies Act, 1913, fully support the proposition that the jurisdiction conferred on the Courts mentioned in Section 2(11) and Section 10 of the Act is the jurisdiction to deal with matters provided for by the Act. The Courts nominated under the Act have exclusive jurisdiction to take cognizance of the matters covered by the Companies Act. This follows from the well-settled principle that where a particular Court is specified or a special tribunal is created, by or under authority of an Act of Legislature, for the purpose of determining questions as to rights which are the creation of the Act, then the jurisdiction of that Court or tribunal is, unless otherwise provided, exclusive. It really seems unnecessary to refer to authorities in support of this principle. But reference may be made to the decision of the Supreme Court in Ponnuswami v. Returning Officer, Namakkal Constituency, AIR 1952 SC 64, where, after referring to the case of Wolverhampton New Water Works Co. v. Hawkesford, (1859) 6 CB (NS) 336, and other cases, the Supreme Court laid down the rule that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of.

This rule has been followed recently by the Punjab High Court in Muni Lal v. Balwant Rai, AIR 1985 Punj 24, where it has been held that since liquidators are creations of the Indian Companies Act, 1913, and their liability along with officers of the Company for damages for misfeasance or non-feasance is created by Section 235 of that Act, it is necessarily implied that any share-holder, who claims damages, must go to the Court mentioned in Section 3 of the Act of 1913. In AIR 1947 Mad 322, Clarke, J. no doubt dissented from the proposition laid down in ILR 58 All 988: (AIR 1936 All 568), that the Company Court under the Act of 1913 was the only Court having jurisdiction to enquire into the matters covered by the Act of 1913. According to the learned Judge, there was no provision in the Indian Companies Act, 1913, which gave the Court having jurisdiction under that Act exclusive jurisdiction in all company matters. With greatest respect to the learned Judge, I do not find myself in agreement with the view expressed by him rendering altogether nugatory the provisions of Section 3 of the Act of 1913 and which does not take into account the provisions of Section 9 of the C. P. C., which distinctly says that 'The Courts shall.... have jurisdiction to try all suits of a civil nature 'excepting suits of which their cognizance is either expressly or impliedly barred.'*

The necessary implication of Section 3 of the Act of 1913, as also of Section 10 of the Act of 1956, is to exclude jurisdiction of other Courts in regard to matters covered by the Companies Act. In connection with the exclusion of jurisdiction of other Courts, the line of Inquiry is not whether there Is any provision besides Section 10 in the Companies Act giving the Company Court exclusive jurisdiction in company matters. But it is whether after having specified the Courts having jurisdiction under the Companies Act, the said Act contains an 'otherwise' provision excluding the jurisdiction of the Company Court in matters falling under the Companies Act.

The same criticism applies to the decision in Star Tile Works, Kallai v. N. Govindan, AIR 1959 Ker 254, where, following the decision in AIR 1947 Mad 322: ILR (1947) Mad 546, it has been held that even in respect of matters provided in the Companies Act, the jurisdiction of the civil Court is not taken away. It may be mentioned that the Kerala High Court referred to Ram Kissendas v. Satya Charan, AIR 1950 PC 81, as supporting this proposition. As I read the Privy Council decision, it does not lay down any such rule. The observations of the Privy Council, which were referred to by the learned Judges of the Kerala High Court, only say that where the matter is one concerning the internal management of a company, the Court will not on principle interfere. In the Privy Council case, no controversy at all was raised as to whether in matters provided in the Companies Act the Court having jurisdiction under that Act has exclusive jurisdiction.

9. If the subject-matter of the plaintiff Shri Hajarimal's suit is covered by the Companies Act, 1956, then the Court of the Civil Judge, First Class, Rajnandgaon, is clearly not the Court having jurisdiction under Section 10 of the Act in regard to matters falling under the Act relating to the petitioner-Company having its registered office in Nagpur. Now, though the plaintiff has alleged that the order, dated the 29th July 1957 of the Central Government granting to the petitioner-Company exemption under Section 89(4) of the Act is without jurisdiction, null and void, he has not sought any declaration about its nullity, or made a prayer that the Central Government be restrained from giving effect to it or the petitioners be prevented from acting upon it. He has treated the order of exemption illegal and of no effect and has alleged that on ignoring it, it must be deemed that a resolution against the continuance of the managing agents was passed at the annual general meeting held on or about 22nd February 1960 and thus the Nagpur Times Trust had ceased to be the managing agents of the Company and, therefore, the resolutions which formed the subject-matter of items Nos. 4 and 5 were incompetent and invalid and could not be considered at the meeting convened on 22nd January 1965. The plaintiff has also said that the managing agents ceased to hold office for the reasons that the terms of the managing agency were varied without the sanction of the Central Government under Section 329 and that the approval of the Central Government under Section 346 of the Act was not obtained for re-constitution of the managing agency. His further complaint is that the exercise by the managing agents of the deferred shares voting rights is contrary to Sections 87 and 89 of the Act. In effect, the plaintiff's claim is that the Company and the Managing Agents have failed to comply with the mandatory provisions of the Act, to wit, Sections 87, 89, 329 and 346 of the Act.

It is important to note that the validity of the notice of the meeting, which was received by the plaintiff on 31st December 1964--the date on which according to the plaintiff cause of action for the suit arose--has not been challenged by the plaintiff on the ground that it did not comply with the requirements of Sections 171, 172 and 173 of the Act. His grievance is not that the meeting itself was invalid. The notice is said to be vitiated only in regard to items 4 and 5 of the agenda on the ground that the managing agents already having ceased to hold office the resolutions mentioned in items 4 and 5 of the agenda could not be considered It is true that in Para 13 of the plaint, the plaintiff has characterised the notice and the explanatory note attached to it under Section 173 of the Act as 'fraudulent, mischievous and tricky' and has narrated some of 'suppressions' found by him in the notice and the explanatory note. But the validity of the notice has not been attacked by the plaintiff on the ground of any 'fraud'. The 'fraudulent, mischievous and tricky' nature of the notice and the explanatory note stated by the plaintiff consists in the alleged failure of the petitioners to comply fully with the provisions of Section 173 of the Act, and in the alleged non-compliance of Sections 87 and 89 of the Act. In essence, the plaintiffs suit is for certain reliefs founded on the allegations that there has been non-compliance with Sections 87, 89, 329 and 346 of the Act and that the managing agents have ceased to hold office. This real nature of the suit is in no way affected or altered by the use of the words fraudulent', 'mischievous' and 'tricky' by the plaintiff in regard to the notice of the meeting served on him and the explanatory note attached to it.

10. The prohibitory injunction sought by the plaintiff in his suit are all intended to ensure compliance with certain provisions of the Act. These reliefs can be granted only by the Court having jurisdiction under Section 10 of the Act as Section 398 gives to the plaintiff a specific remedy for the redress of his grievances ventilated to the suit. That section runs as follows-

'398. (1) Any member of a company who complains-

(a) that the affairs of the company are being conducted in a manner prejudicial to the interests of the company; or

(b) that a material change......has taken place in the management or control of the company, whether by an alteration in its Board of Directors or of its managing agent .....or in the constitution or control of ...body corporate acting as its managing agent...... and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company; may apply to the Court for an order under this section, provided such members have a right so to apply in virtue of Section 399.

(2) If, on any application under Sub-section (1), the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.'

Section 402 says that without prejudice to the generality of the powers of the Court under Section 398, the Court can make inter alia any order for the regulation of the conduct of the company's affairs in future, and for the termination, setting aside or- modification of any agreement, howsoever arrived at, between the company on the one hand and the managing agent on the other. It is clear from the above provisions that if the plaintiff--Hajarimal, thinks that voting rights have been disproportionately exercised contrary to Section 89 of the Act, and because of this as also because of non-compliance with Sections 329 and 346 the managing agents have ceased to hold office and are not entitled to continue, he has the remedy of approaching the Court having jurisdiction under Section 10 for the redress of his various complaints. It is true that the right to move under Section 398 the Court having jurisdiction under Section 10 has been given only to the members of the company mentioned in Section 399. But, as stated by the plaintiff himself in Para 22 of the plaint, his suit being a representative suit on behalf of all the equity share-holders of the company, it cannot be maintained that the suit is barred under Section 399. Even if it be taken that the plaintiff's suit is in his individual capacity and in that capacity he has no right to apply under Section 398, still the plaintiff's suit cannot be entertained by a Court which does not fall under Section 10 of the Act. The reason is that in regard to matters falling under Section 398 the Court specified in Section 10 of the Act has exclusive jurisdiction and under Section 399 that jurisdiction can be invoked only by the members indicated therein. A member of a company, who has not under Section 399 the right to apply under Section 398, cannot, in respect of matters falling under Section 398, approach an ordinary Court and thus nullify the exclusive jurisdiction given to the Court under Section 10 of the Act in regard to matters under Section 398 of the Act. The idea in living exclusive jurisdiction to the Court under Section 10 in regard to matters within the purview of Section 398 of the Act and restricting the right to apply under Section 398 only to certain members of roe Company is to ensure that the business of the company is not brought to a complete standstill on proceedings initiated by any member of the company in an ordinary Court.

11. The learned civil Judge has taken the view that the plaintiff--Hajarimal's suit is in substance one to establish and enforce the right of a share-holder to exercise his vote and for challenging the validity of the notice given to him of the meeting convened on 22nd January 1965; and that as the notice was served on him at Rajnandgaon, the cause of action arose at that place and he had, therefore, jurisdiction to try the suit. It is difficult to comprehend how on the averments made by Hajarimal in his plaint his suit can be regarded as one for enforcing his individual right to vote. It requires a big leap to arrive at such a conclusion from the averments contained in the plaint. As has already been pointed out, the challenge to the notice of the meeting convened on 22nd January 1965 is not on the ground that the requirements of Sections 171, 172 and 173 were not complied with The objection to the validity of the notice is solely in regard to items 4 and 5 of the agenda only on the ground that the managing agents had already ceased to hold office.

It must be noted that in connection with the jurisdiction of the Court under Section 10 with respect to matters falling under the Act, the question as to where the cause of action arose is not relevant. The place of accrual of the cause of action would be a relevant matter if the whole or a part of the subject-matter of the respondent-Shri Hajarirnal's suit is not covered by the Act. Even on the assumption that the entire subject-matter of the suit fell outside the Act, still the Court of the Civil Judge, First Class, Rajnandgaon, had no jurisdiction to entertain the suit. If the plaint is read in the way the learned civil Judge did as one inter alia for enforcing the right of a share-holder to exercise his vote and challenging the validity of the notice of the meeting convened on 22nd January 1965, then the cause of action for that claim may be said to have arisen at Rajnandgaon where the notice of the meeting was served on Shri Hajarimal. But in regard to the reliefs of prohibitory injunctions claimed by Shri Hajarimal restraining the petitioners Nos. 2, 3 and 4 from functioning as managing agents and from exercising voting rights under the deferred shares in respect of any resolution, the cause of action, if any, cannot be said to have arisen at Rajnandgaon. It can only arise at Nagpur. Now, it is well settled that the right to Join in one suit several causes of action against a defendant cannot be exercised unless the Court to which the plaint is presented has jurisdiction over all causes of action. Where the Court in which the suit is filed has jurisdiction over some causes of action and not others then the proper procedure is to return the plaint to the plaintiff (see Jivraju v. Purushotam, (1884) ILR 7 Mad 171). Thus even if it be assumed that the subject-matter of the suit wholly or partly fell outside the Companies Act, 1956, the Court of the Civil Judge, First Class, Rajnandgaon, had no jurisdiction to entertain the respondent Shri Hajarirnal's suit.

12. If, then the Court of Civil Judge, Class I, Rajnandgaon, has no jurisdiction to entertain the respondent Hajarimal's suit, this Court can under Article 227 of the Constitution and Section 115 of the C. P. C. restrain that Court from proceeding with the trial of the suit and quash that Court's order, dated 18th February 1965 holding that it has jurisdiction to try the suit. It cannot be disputed that under Section 115 of the C. P. C. the High Court can make such order in the case as it thinks fit if the subordinate Court has exercised jurisdiction not vested in it by law. So also under Article 227 of the Constitution the High Court has ample power to interfere where there has been a defect of jurisdiction and the subordinate Court or Tribunal has exceeded the bounds of its authority. [See Waryam Singh v. Amarnath, AIR 1954 SC 215].

13. In this case the respondent Hajarimal filed a return endeavouring to show that the Court of Civil Judge, Class I, Rajnandgaon, had jurisdiction to entertain and try the suit filed by him. The petitioners made Shri Vidya Charan Shukla a respondent to this petition though he is not a party to the suit filed by Hajarimal. In his return he has only replied to the statements made by the petitioners as regards the grant of exemption under Section 89(4) of the Act; the revocation of that exemption and the proceedings taken by him along with others under Articles 226 and 227 of the Constitution in the Punjab High Court challenging the validity of the order of the Central Government, dated 29th July 1957 granting exemption, As he is not a party to the suit filed by Hajarimal, he has not said anything in his return on the question whether the Court of Civil Judge, Class I, Rajnandgaon, has jurisdiction to try the suit filed by Hajarimal. Both the respondents did not, however, appear at the time of the hearing of this application though the hearing was twice postponed earlier at the request of the respondent No. 3, Shri Vidya Charan Shukla. In July 1965 an application was made by Shri Baghel on behalf of Shri Vidya Charan Shukla requesting that a particular date should be fixed for the hearing of the petition in order to enable Shri P R. Mridul, an Advocate from Bombay, to appear for the respondent No. 3. This prayer was granted and a date in the last week of August was directed to be fixed for the hearing of the petition.

Later on, on 16th August 1965 an application was again made on behalf of the respondent No. 3 for the hearing of the petition in the first week of September on the ground that Shri N. De, Additional Solicitor-General of India, would be appearing for the said respondent. To accommodate both the petitioners' counsel and the respondent No. 3's counsel, it was ordered that the case be posted for 21st September 1965. A day before the hearing of the petition, that is, on 20th September 1965, Shri Vidya Charan Shukla sent a telegram from New Delhi addressed to the Registrar expressing the inability of the Additional Solicitor-General to appear on 21st September 1965 and also his own inability to be present on account of his preoccupation with other work. Again, when this petition came up for hearing on 21st September 1965 a request was made by Sarvashri Baghel and Kaushal, learned counsel appearing for the respondents Nos. 2 and 3, for adjourning the hearing of the petition. They stated that they had been instructed by the respondents only to seek an adjournment. They, therefore, declined to address any arguments on the merits of the petition. We did not see any justification at all for further postponing the hearing of the application. In these circumstances, the Court was deprived of the benefit of the arguments from the side of the respondents Nos. 2 and 3. It must be mentioned that on 23rd September 1965 an application was filed by the respondent No. 2, Hajarimal praying that he be given time to arrange for the appearance of a counsel on his behalf and that the case should be reheard. In the circumstances stated above, there is no justification whatsoever for granting this application. Both the respondents were given ample time for making adequate arrangements for their appearance.

14. For these reasons, I would allow this petition, set aside the order, dated the 18th February 1965 of the Civil Judge, First Class, Rajnandgaon, holding that he has jurisdiction to try the suit filed by the respondent Hajarimal, and direct the learned Civil Judge to return the plaint to the plaintiff with proper endorsement as required by Order 7, Rule 10 of the C. P. C. The respondent Hajarimal shall pay to the petitioners costs here and in the Court below. Counsel's fee of this petition is fixed at Rs. 200, which shall be paid by the respondent Hajarimal. The outstanding amount of the security deposit shall be refunded to the petitioners.

Pandey, J.

15. I agree that the respondent 2 has claimed in the suit filed by him in the Court of Civil Judge, Class 1, Rajnandgaon, several reliefs grounded on different causes of action, not all of which arose within the territorial limits of jurisdiction of that Court. I agree also that the order dated 18th February, 1965 should be set aside and the Civil Judge should be directed to return the plaint to the respondent 2 for presentation to the proper Court. But, with great respect, I have not been able to persuade myself to share the opinion of my Lord that Section 10 of the Companies Act, 1956, by its own force and effect, excludes by necessary implication jurisdiction of other Courts in regard to matters provided by that Act or that, in connexion with the exclusion of jurisdiction of other Courts, the line of enquiry should be, not whether there is any provision besides Section 10 of the Act giving the Company Court exclusive jurisdiction in company matters but whether there is any 'otherwise' provision in the Act excluding the jurisdiction of the Company Court in matters falling under the Act.

16. As I read the definition of 'the Court' in Clause (a) of Section 2(11) of the Act (the one in Clause (b) not being material for this case), it merely enacts that, for determining the Court competent to deal with any matter relating to a company (other than an offence against the Act), one must refer to Section 10 of the Act for ascertaining which Court has jurisdiction under that Act with respect to that matter relating to that company. The reason for this is obvious from the provisions of Section 10. Where the jurisdiction in regard to the particular matter under consideration has been conferred on District Courts under Sub-section (2) of Section 10, the District Court within whose territorial jurisdiction the registered office of the company is situate will be the Court having jurisdiction to deal with that matter. Again, as provided by Sub-section (3) of Section 10, the jurisdiction to wind up a company will be in that High Court or District Court, as the case may be, within whose territorial jurisdiction its registered office remained located for the longest period during the six months immediately preceding the presentation of the winding up petition. In my opinion, Section 10 of the Act merely specifies the Courts, which have jurisdiction to adjudicate upon the various matters required by the provisions of the Act to be dealt with by 'the Court'.

17. The question whether the Company Court has jurisdiction to deal with all matters relating to a company, even if the power so to do has not been expressly conferred on ft by the provisions of the Act in regard to some of those matters, is easily answered. In ILR 58 All 988: AIR 1936 All 568 a Division Bench of the Allahabad High Court took the view that such power, even though not expressly conferred by the provisions of the 1913 Act existed. A Full Bench of the same Court, however, held in ILR 1937 All 220: AIR 1936 All 830 that the jurisdiction of the High Court under Section 3 of the Companies Act, 1913, was obviously the jurisdiction exercised by virtue of the specific provisions of the Act. The same view was taken in ILR 63 Cal 773: AIR 1937 Cal 81 and AIR 1947 Sind 31. That in my opinion also, is the correct view and Clarke, J. was, I think, right in pointing out in ILR (1947) Mad 546: AIR 1947 Mad 322 that the Company Judge had no exclusive jurisdiction with respect to all company matters and that, in particular, he had no jurisdiction to deal with any such matter for which the special provisions of that Act did not provide any remedy.

18. As provided by Section 9 of the Code of Civil Procedure, the Civil Court has jurisdiction to try all suits of a civil nature except those of which the cognizance is expressly or impliedly barred. It follows from this that the Civil Court will have jurisdiction with respect to all matters relating to a company involving rights of a civil nature in regard to which no express provision has been made in the Act unless their cognizance is impliedly barred, that is to say, barred on general principles of law or on grounds of public policy. In company law, it is a well established elementary principle that the Court will not interfere with the internal management of companies. This is known as the rule in Foss v. Harbottle, (1843) 2 Hare 461. In the Privy Council case of Burland v. Earle, 1902 AC 83. Lord Davey observed at p. 93:

'It is an elementary principle of the law relating to joint stock companies that the court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so..........

These cardinal principles are laid down in the well-known cases of (1843) 2 Hare 461 and Mozley v. Alston, (1847) 1 Ph 790 and in numerous later cases which it is unnecessary to cite.'

A recent case, where the rule was applied, is Pavlides v. Jensen, 1956-2 All ER 518. But this rule is subject to several important qualifications which have been elaborately considered in Nagappa v. Madras Race Club, ILR (1949) Mad 808: (AIR 1951 Mad 831 (2)). The Madras High Court pointed out in mat case that a shareholder has a right to bring an action-

(i) in respect of matters which are ultra vires the company;

(ii) where the action of the majority if illegal;

(iii) where a special resolution is required by the articles of the company to do a particular thing and It is done either without such resolution or the assent of the majority to such resolution is obtained by a trick; and

(iv) where the act complained of constitutes a fraud on the minority.

19. The further question is whether the Company Court has. or does not have, exclusive jurisdiction with respect to those matters relating to a company which are required by the provisions of the Act to be dealt with by that Court. There is no provision in the Act which excludes the jurisdiction of the Civil Court in regard to any of those matters. Even so, It does not necessarily follow from this that the Civil Court has concurrent jurisdiction in regard to all those matters. If AIR 1959 Ker 254 lays down such a wide proposition, I must, with respect, disagree. I may also state in this connexion that Mohideen Pichai v. Tinnevelly Mills Co., AIR 1928 Mad 571 and Bank of Hindustan Ltd. v. Suryanarayana, ILR (1957) Mad 1058: ((S) AIR 1957 Mad 702), which were relied upon in the Kerala case, do not lend support to so wide a proposition. In my opinion, the question falls to be determined upon general principles which were stated long ago by Willis, J. on (1859) 6 CB (NS) 336. The relevant passage at p. 356, which was repeatedly re-affirmed by the Privy Council and quoted with approval by the Supreme Court in 1952 SCR 218: AIR 1952 SC 64 reads:

'There are three classes of cases in which a liability may be established founded upon statute. One is, where there was a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law; there, unless the statute contains words which expressly or by necessary implication exclude the common law remedy, the party suing has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but provides no particular form of remedy; there, the party can only proceed by action at common law. But there is a third class, viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it...... The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to eases of the second class. The form given by the statute must be adopted and adhered to.' (Pages 231-2) (of SCR): (at p. 69 of AIR).

The rule, therefore, is that the remedy provided by the provisions of the Act is the exclusive remedy in regard to a right or liability specially created by those provisions only where they give a special remedy for enforcing it. In all other cases, the jurisdiction of the Civil Court is not excluded. So, although a petition under Section 155 of the Act corresponding to Section 38 of the 1913 Act is the normal way for moving the Company Court for rectification of the register, a suit can also be filed for that relief; AIR 1928 Mad 571; ILR (1957) Mad 1058: ((S) AIR 1957 Mad. 702); Bhagat Singh v. Piar Bus Service Ltd., AIR 1959 Punj 352; People's Insurance Co. Ltd. v. Wood and Co., Ltd. AIR 1960 Punj 388 and Manilal v. Western India Theatres Ltd., AIR 1963 Bom 40. In the last-mentioned case. Shah, J. (as he then was) pointed out that Section 155 of the Act provided for a summary remedy which did not whittle down or abrogate the primary remedy of a suit under the general law and accordingly dismissed a suit for rectification of the register filed in the Company Court on the ground that it did not nave, and the City Civil Court had, jurisdiction to entertain it. Again, Section 543 of the Act relating to compensation for misfeasance provides for a remedy of a summary character which does not exclude the remedy of a regular suit. In regard to the nature of misfeasance proceedings under the statute, I may recall the observations in Halsbury's Laws of England, Third Edition, Vol. 6, at p. 622:

'The foregoing provision does not create any new liability or new right, it only provides a summary mode of enforcing rights (including rights created by the winding up) which must otherwise have been enforced by the ordinary jurisdiction of the Court.'

These observations were relied upon in S. V. Venkatasubbu v. Utilities (India) Ltd., AIR 1964 Mad 230 where their Lordships have held that Section 543 of the Act, which is an enabling provision, cannot be construed as depriving the aggrieved party of the remedy of a suit. This is what their Lordships have stated;

'We are of opinion that Section 543 is only an enabling provision, and it cannot be construed as depriving the aggrieved parties of a remedy by way of suit by reason only of the special procedure provided for therein. The present case falls directly within the first category of cases described by Willis J. in (1859) 6 CB (NS) 336 at p. 356. There is no principle of law, so far as we are able to see, which would disable a suitor from pursuing one of several remedies which he may have under the law of the land. The utmost that can be said is that he should not pursue all the remedies concurrently as that would result in multiplicity of proceedings and perhaps also In conflicting judicial pronouncements. So long as a right of suit cannot be said to have been taken away expressly or by necessary implication, the suit must be held to be maintainable.' (Page 232).

A similar opinion has been expressed in Colaba Land and Mill Co. v. V. I. Corporation, AIR 1964 Guj 107 at p. 112 (Pr. 8). Falshaw, C. J. has apparently taken a different view in AIR 1965 Punj. 24. Even so, he has cautiously observed as follows:

'There is in fact no doubt that the reliefs which are sought in the present suit could properly have been applied for and obtained from this Court under the provisions of the Companies Act, but the question is whether this is the only remedy open to the plaintiffs, and it must be stated at once that, unlike some statutes, the Companies Act does not contain any express provision barring the jurisdiction of the ordinary civil Courts in matters covered by the provisions of the Act. There is also no doubt that the ordinary civil Courts can and do decide the rights of parties on many matters arising out of the provisions of the Act. There is no doubt about the general principle, which is that the jurisdiction of the ordinary Courts is only barred where this is expressed in a statute or necessarily implied, and while there are no doubt instances of cases being tried by the ordinary civil Courts for the determination of rights or obligations created by the provisions of the Act, there is not, so far as I am aware, any precedent for matters relating to the winding up of a company, even a voluntary winding up, being decided by the ordinary Courts. In my opinion, there is a good deal to be said for the argument, of the learned counsel for the petitioners that even in a case of a voluntary winding up. It is necessarily implied that proceedings by shareholders against liquidators in respect of the conduct of winding up proceedings are intended to be dealt with by the Court under the Act, i.e. the High Court particularly in case where allegations of misfeasance and non-feasance are being made against the liquidators, as in the present case.' (Page 25).

It is not necessary for purposes of this case to examine which of the two views in regard to the effect of the provisions of Section 543 of the Act is correct but, having regard to the authorities noticed in this paragraph, it would, I think, not be accurate to say that if a matter is required by the provisions of the Act to be dealt with by the Company Court, the jurisdiction of the Civil Court is, by necessary implication, excluded. As I have endeavoured to indicate earlier, in order to determine whether the Company Court has exclusive jurisdiction to deal with a particular matter relating to a company, the line of enquiry should be whether the Act has, in regard to that matter, created a right or liability not existing under the general law and has also, at the same time, given a particular and special remedy for enforcing it.

BY THE COURT:

20. This petition is allowed. The order dated the 18th February, 1965of the Civil Judge, First Class, Rajnandgaonholding that he has jurisdiction to try the suitfiled by the respondent Hajarimal is set aside,and the learned Civil Judge is directed to returnthe plaint to the plaintiff with proper endorsement as required by Order 7, Rule 10, C. P. C. Therespondent Hajarimal shall pay to the petitionerscosts here and in the Court below. Counsel'sfee of this petition is fixed at Rs. 200, whichshall be paid by the respondent Hajarimal. Theoutstanding amount of the security deposit shallbe refunded to the petitioners.


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