04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors.

tructions Pvt Ltd & Ors. on 16 October, 2018

Mobile View
Delhi High Court
Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October,
2018

SINDHU KRISHNAKUMAR

16.10.2018 17:44

$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 20th September, 2018
Date of decision :16th October, 2018
+ CS (COMM) 1496/2016, I.As. 4565/2014, 8964/2014, 2523/2017 &
2524/2017
SAS HOSPITALITY PVT LTD & ANR. ..... Plaintiffs
Through: Mr. Brij Bhushan Gupta, Senior
Advocate with Mr. Amarjeet Singh
and Mr. Uday Khanna, Advocates.
(M:9540954431)
versus
SURYA CONSTRUCTIONS PVT LTD & ORS. ..... Defendants
Through: Ms. Anisha Mahajan, Advocate for
D-1. (M:8860273364)
Mr. Dhruv Surana and Mr. Ashish
Choudhury, Advocates for D-2 and 3.
(M:9836411111)
Mr. Jayant Mehta, Mr. N. Raja Singh
and Mr. Sumit Malhotra, Advocates
for D-4, 6 to 9. (M:9871128442)
CORAM:
JUSTICE PRATHIBA M. SINGH
JUDGMENT

Prathiba M. Singh, J.

1. The Plaintiff - SAS Hospitality Pvt. Ltd. (SAS) has filed the present suit seeking a declaration that
the allotment of shares in favour of the Defendant Nos.5 to 9 is null and void and a permanent
injunction be passed from giving effect to the allotment dated 5th October, 2013. Reliefs prayed in the
plaint are as under:

"a. Declaring that the allotment of shares, dated 05th October, 2013, in Defendant No.1
Company in favour of Defendant No.5-9 as set in Schedule I to the Plaint to be null, void
and illegal;

b. Issue a decree of Permanent Injunction restraining the Defendant No.1 and Defendant
No.2-4 from giving effect to ·allotment dated 05th October, 2013. c. Issue a decree of
Permanent Injunction restraining the Defendant No. 5-9 to exercise any voting rights or
whatsoever rights in Defendant No.1 Company in view of the illegal allotment of shares
dated 05th October, 2013.

d. Issue a decree of Permanent Injunction restraining the Defendant No.1 from selling,
disposing or creating third party rights on the assets of the Defendant No.1, that is, the
hotel property, J-14, Community Centre Rajouri Garden, New Delhi-110027.

e. And/or pass any other order as your lordship may deem fit in the facts and circumstances
of the case."

2. SAS Hospitality Pvt. Ltd. is the Plaintiff No.1 in the present suit and Plaintiff No.2 Mr. Anant
Kumar Aggarwal is the shareholder of the Plaintiff No.1. The Defendant No.1 - Surya Construction
Pvt. Ltd. (Company) is a company, which owned a hotel property at J-14, Community Centre, Rajouri
Garden, New Delhi-110027. The authorised share capital of the Company was 1 crore divided into 1
https://indiankanoon.org/doc/144383672/ 1/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

Lakh equity shares of Rs.100/- each. The actual issued share capital as on 31st March, 2013 was
Rs.85,76,500/- comprising of 85,765 shares of Rs.100/- each. The Defendant Nos.2 to 4 Mr. Samir
Nawalgari, Mr. Sharad Nawalgari and Mr. Vaibhav Jhawar were managing the Company. The majority
shareholder of the Defendant No.1 Company to the tune of 99.96% was the Plaintiff Company.

3. The suit was filed on the basis of the following allegations.

a) That the Defendant Nos.5 to 9 were allotted shares of the Company in an illegal and clandestine
manner on 5th October, 2013.

b) That the said allotment was made known by virtue of returns filed on 7th December, 2013

c) That the allotment of shares was done in an illegal and unlawful manner by transferring the moneys
belonging to the Company and showing artificial deposit of Rs.1.6 crores. In fact, the same amount of
Rs.48 Lakhs belonging to the Company was rotated repeatedly to show that the Defendant Nos.5 to 9
had paid the Company between 6th and 9th September, 2013, whereas in fact they had not made the
said payments.

d) That in a fraudulent manner the shareholding of the Plaintiff in the Company, which was to the tune
of 99.96%, was diluted to 21.44%.

e) That the share warrants, which were purportedly issued on 30th March, 2013, were illegal as the
share capital did not permit issuance of share warrants. Moreover, share warrants could only be issued
by a public limited company and not by a private limited company.

f) That by circulating the same amount on four different occasions and showing that the Defendant
Nos.5 to 9 had subscribed to the share capital, allotment of share was made in their names, which is
completely illegal.

4. The plaint also mentions that one of the directors approached the Company Law Board ('CLB')
seeking redressal and vide order dated 24th October, 2013, a status quo order was passed by the CLB.
Proceedings therein are stated still to be pending.

5. The Defendants have filed their written statement and raised a preliminary issue as to the
maintainability of the present suit. It is stated that the Company was in severe financial crisis due to a
loan taken by the Company from India Bulls Housing Finance Ltd. In fact, it is stated that the only
property of the Company has already been attached under Securitisation and Reconstruction of
Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter, 'SARFAESI Act') and
the same has, in fact, been sold. The purported sole asset of the Defendant No.1 Company is no longer
an asset of the Plaintiff Company.

6. The Defendants, further, contend that in view of the notification and coming into effect of the
National Company Law Tribunal ('NCLT'), this Court has no jurisdiction to try and entertain the suit in
view of the bar contained in Section 430 and Section 434(1)(c) of the Companies Act, 2013
(hereinafter, '2013 Act'). Applications under Order VII Rule 11 CPC have been filed seeking rejection
of the plaint. The Plaintiffs have also filed an application under Order XXXIX Rules 1 & 2 CPC in
which an ex-parte injunction order was granted in the following terms vide order dated 12th March,
2014.

9. I am satisfied that the plaintiff has made out a prima facie case for grant of an ex parte ad interim
injunction and in case the ex parte ad interim injunction is not granted, the plaintiff shall suffer an
irreparable loss and injury. The balance of convenience is also in favour of plaintiff. It is directed that
till the next date of hearing defendants No. 5 to 9 shall not exercise any rights in respect of shares
allotted to them on 5.10.2013. Further, defendants No.2 to 4 are restrained from disposing of any asset
of the company or creating any third party interest in the assets of the company except in the ordinary
course of business. In case any immovable asset is disposed of or any third party is created even in the
ordinary course of business, the said defendants shall file such a statement before the court.

https://indiankanoon.org/doc/144383672/ 2/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

7. The Defendants have filed an application seeking vacation of the said injunction, as well. The
Defendant Nos.2 & 3 have also filed an application under Order 40 CPC being I.A. No.13437/2017
seeking appointment of receiver. Thus, the present order is being passed in all the pending applications.

8. On behalf of the Defendants, Mr. Jayant Mehta, Advocate seeks rejection of the plaint on the
following grounds.

a) Lack of jurisdiction of this Court in view of Section 59 of the Companies Act, 2013 read with
Section 430 and Section 434 (1)(c) of the Companies Act, 2013.

b) That the board resolution authorizing filing of the suit is defective as no board meeting was, in fact,
conducted on 21st January, 2014 on which date Mr. Mohit Mittal, who has signed the plaint, had been
purportedly authorised. Thus the suit is defective.

c) That the matter, in any case, was before the CLB and has, now, been transferred to the NCLT. Thus,
two different forums cannot adjudicate the same issue. He relies upon the judgment of the Supreme
Court in Amonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. AIR 1998 SC
3153 (hereinafter, 'Ammonia Supplies SC'). He also relies upon the judgment of this Court in Jai
Kumar Arya v. Chhaya Devi (2018) 142 CLA 365 (hereinafter, 'Jai Kumar Arya') to argue that the
interpretation given in this judgment supports his case.

d) Mr. Mehta also relies upon Telecommunications Consultants India Ltd. v. TCIL Bellsouth Ltd. ILR
(2006) II Delhi 780 (hereinafter, 'Telecommunications Consultants India Ltd.') to argue that the NCLT
is the appropriate forum to adjudicate the present dispute.

9. On the other hand, Mr. B. B. Gupta, Counsel appearing for the Plaintiffs submit that this Court has
jurisdiction to entertain the present suit as the present dispute is not one covered by Section 59 of the
Companies Act, 2013 but in fact, one which is covered by Section 62 of the same, which deals with the
issuance of further share capital. He also submits that this issue has now been decided by a learned
Single Judge of this Court in Satish Chandra Sanwalka v. Tinplate Dealers Association Pvt. Ltd. & Ors.
189 (2012) DLT 785 (hereinafter, 'Satish Chandra Sanwalka') and the Division Bench judgment of this
Court in Jai Kumar Arya (supra) which hold that the jurisdiction of the civil court under Section 9 CPC
is not ousted. In fact, he relies upon the judgment of the Supreme Court in Amonia Supplies SC (supra)
to argue that if the matter required rectification of the register of the Company under Section 155 of the
Companies Act, 1956, it is to be adjudicated before the civil Court. He further submits that the
argument of the Defendants that Mr. Mohit Mittal is not duly authorised by the board is untenable as he
can produce the original board meeting minutes dated 21st January, 2014 to show that the board
meeting, in fact, took place. Analysis & Findings

10. Before going into the question as to whether this Court has the jurisdiction to entertain and try the
present suit and grant reliefs prayed for, it is necessary to analyze the scheme of the Companies Act,
2013, along with the constitution of the NCLT. The NCLT has been vested with powers that are far
reaching in respect of management and administration of companies. The said powers of the NCLT
include powers as broad as "regulation of conduct of affairs of the company" under Section 242(2)(a),
as also various other specific powers. NCLT is a tribunal which has been constituted to have exclusive
jurisdiction in the conduct of affairs of a company and its powers can be contrasted with that of the
CLB under the unamended Companies Act, 1956.

11. In the 2013 Act, Sections 407 onwards deal with the constitution of the Tribunal. Section 420 has
vested the Tribunal with powers to 'pass such orders thereon as it thinks fit'. The Tribunal is also vested
with the power of review. Under Section 424 of the Companies Act, 2013, the Tribunal also has the
same powers and functions as are vested with a Civil Court. In addition to the above, the Tribunal also
has the power to punish for contempt which was hitherto not available with the CLB. In various ways,
the NCLT is not merely exercising the jurisdiction of a Company Court under the new Act, but is also
vested with inherent powers and powers to punish for contempt. It is in this background that the court
has to decide the issue of jurisdiction, which has been raised by the Defendant.

https://indiankanoon.org/doc/144383672/ 3/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

12. Under Section 62 of the 2013 Act, a procedure has been prescribed for issuance of share capital.
The said procedure involves sending of a letter of offer to existing shareholders [Section 62(1)(a)] and
to employees [Section 62(1)(b)]. The manner of sending of the said offer is also prescribed. The said
offer also has to contain the details as to the terms under which the offer is being made, including the
terms for conversion of debentures or loans to shares. Upon this procedure being followed, the
subscribed share capital can be increased by the company.

13. The effect of the increase in the share capital and allotment of the same to any person has an
automatic effect, i.e., it results in the alteration of the register of members under Section 59 of the 2013
Act. Thus, while the power to issue share capital vests in the company, the said power, without the
section implementing the said issuance, is of no effect, and has no consequence. Any dispute in respect
of rectification of the register of members under Section 59, can be raised by any person aggrieved to
the Tribunal i.e., the NCLT.

14. Section 430 of the 2013 Act, which bars the jurisdiction of the Civil Court, has to be given effect to
in this background, and reads as under:

"Section 430: Civil court not to have jurisdiction. No civil court shall have jurisdiction to
entertain any suit or proceeding in respect of any matter which the Tribunal or the
Appellate Tribunal is empowered to determine by or under this Act or any other law for the
time being in force and no injunction shall be granted by any court or other authority in
respect of any action taken or to be taken in pursuance of any power conferred by or under
this Act or any other law for the time being in force, by the Tribunal or the Appellate
Tribunal."

15. The bar contained in Section 430 of the 2013 Act is in respect of entertaining "any suit", or "any
proceedings" which the NCLT is "empowered to determine". The NCLT in the present case would be
empowered to determine that the allotment of shares in favour of the Defendant Nos.5 to 9 was not
done in accordance with the procedure prescribed under Section 62 of the 2013 Act. The NCLT is also
empowered to determine as to whether rectification of the register is required to be carried out owing
to such allotment, or cancellation of allotment ordered, if any. The NCLT can also determine if in the
interregnum, the Defendant Nos.5 to 9 ought to exercise any voting rights. The NCLT would be
empowered to pass any such orders as it thinks fit, for the smooth conduct of the affairs of the
company, which would include an injunction order protecting the assets of the Defendant No.1
Company. The NCLT would also be empowered to oversee and supervise the working of the company,
and also appoint such persons as it may deem necessary to regulate the affairs of the company.

16. The allegations in the present case relate to non-compliance of the stipulations in Section 62 of the
2013 Act. The non-compliance of any conditions contained in Section 62 of the 2013 Act also
constitutes mismanagement of the company, inasmuch as under Section 241 of the 2013 Act, the
conduct of affairs of the company "in a manner prejudicial" to any member or "in a manner prejudicial
to the interest of the company", would be governed by the same. The jurisdiction to go into these
allegations, vests with the Tribunal under Section 242 of the 2013 Act. Under Section 242(2), the
NCLT has the power to pass "such order as it thinks fit", including providing for "regulation of conduct
of affairs of the company in future". These powers are extremely broad and are more than what a Civil
Court can do. Even if in the present case, the Court grants the reliefs sought for by the Plaintiff, after a
full trial, the effective orders in respect of regulating the company, and administering the affairs of the
company, cannot be passed in these proceedings. Such orders can only be passed by the NCLT, which
has the exclusive jurisdiction to deal with the affairs of the company.

17. Moreover, the powers of the NCLT being broader and wider than what can be exercised by this
Court in exercise of civil jurisdiction under Section 9 CPC. The NCLT is a specialised Tribunal
constituted for the purpose of speedier and effective regulation of the affairs of the companies. As
observed by the Supreme Court in Union of India v. R. Gandhi (2010) 11 SCC 1 (hereinafter, 'R.
Gandhi') and thereafter, in Madras Bar Association v. Union of India (2015) 8 SCC 583 (hereinafter,
'Madras Bar Association') the NCLT has been created by a specific amendment in the law. The

https://indiankanoon.org/doc/144383672/ 4/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

constitution of the NCLT has been upheld. The relevant observations in the said R. Gandhi (supra) is
set out below:

"33. The argument that there cannot be 'whole-sale transfer of powers' is misconceived. It
is nobody's case that the entire functioning of courts in the country is transferred to
Tribunals. The competence of the Parliament to make a law creating Tribunals to deal with
disputes arising under or relating to a particular statute or statutes cannot be disputed.
When a Tribunal is constituted under the Companies Act, empowered to deal with disputes
arising under the said Act and the statute substitutes the word 'Tribunal' in place of 'High
Court' necessarily there will be 'whole-sale transfer' of company law matters to the
Tribunals. It is an inevitable consequence of creation of Tribunal, for such disputes, and
will no way affect the validity of the law creating the Tribunal."

18. In Madras Bar Association (supra), relying upon the decision in R. Gandhi (supra), the Supreme
Court observed as under:

"11. First of all the creation of Constitution of NCLAT has been specifically upheld in 2010
judgment. It cannot be denied that this very Petitioner had specifically questioned the
Constitutional validity of NCLAT in the earlier writ petition and even advanced the
arguments on this very issue. This fact is specifically noted in the said judgment. The
provision pertaining to the constitution of the Appellate Tribunal i.e. Section 10FR of the
Companies Act, 1956 was duly taken note of. Challenge was laid to the establishments of
NCLT as well as NCLAT on the ground that the Parliament had resorted to tribunalisation
by taking away the powers from the normal courts which was essentially a judicial function
and this move of the Legislature impinged upon the impartiality, fairness and
reasonableness of the decision making which was the hallmark of judiciary and essentially
a judicial function. Argument went to the extent that it amounted to negating the Rule of
Law and trampling of the Doctrine of Separation of Powers which was the basic feature of
the Constitution of India. What we are emphasising is that the petitions spearheaded the
attack on the constitutional validity of both NCLT as well as NCLAT on these common
grounds. The Court specifically went into the gamut of all those arguments raised and
emphatically repelled the same.

12. The Court specifically rejected the contention that transferring judicial function,
traditionally performed by the Courts, to the Tribunals offended the basic structure of the
Constitution and summarised the position in this behalf as under:

We may summarize the position as follows:

(a) A legislature can enact a law transferring the jurisdiction exercised by courts in regard
to any specified subject (other than those which are vested in courts by express provisions
of the Constitution) to any tribunal.

(b) All courts are tribunals. Any tribunal to which any existing jurisdiction of courts is
transferred should also be a Judicial Tribunal. This means that such Tribunal should have
as members, persons of a rank, capacity and status as nearly as possible equal to the rank,
status and capacity of the court which was till then dealing with such matters and the
members of the Tribunal should have the independence and security of tenure associated
with Judicial Tribunals.

(c) Whenever there is need for 'Tribunals', there is no presumption that there should be
technical members in the Tribunals. When any jurisdiction is shifted from courts to
Tribunals, on the ground of pendency and delay in courts, and the jurisdiction so
transferred does not involve any technical aspects requiring the assistance of experts, the
Tribunals should normally have only judicial members. Only where the exercise of
jurisdiction involves inquiry and decisions into technical or special aspects, where presence
of technical members will be useful and necessary, Tribunals should have technical

https://indiankanoon.org/doc/144383672/ 5/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

members. Indiscriminate appointment of technical members in all Tribunals will dilute and
adversely affect the independence of the Judiciary.

(d) The Legislature can re-organize the jurisdictions of Judicial Tribunals. For example, it
can provide that a specified category of cases tried by a higher court can be tried by a lower
court or vice versa (A standard example is the variation of pecuniary limits of courts).
Similarly while constituting Tribunals, the Legislature can prescribe the
qualifications/eligibility criteria. The same is however subject to Judicial Review. If the
court in exercise of judicial review is of the view that such tribunalisation would adversely
affect the independence of judiciary or the standards of judiciary, the court may interfere to
preserve the independence and standards of judiciary. Such an exercise will be part of the
checks and balances measures to maintain the separation of powers and to prevent any
encroachment, intentional or unintentional, by either the legislature or by the executive.

13. Thereafter, the Constitution Bench categorically dealt with the Constitutional validity
of NCLT and NCLAT under the caption "Whether the constitution of NCLT and NCLAT
under Parts 1B & 1C of Companies Act are valid", and embarked upon the detailed
discussion on this topic. It becomes manifest from the above that the question of validity of
NCLAT was directly and squarely in issue. Various facets of the challenge laid to the
validity of these two fora were thoroughly thrashed out. No doubt, most of the discussion
contained in paras 107 to 119 refers to NCLT. However, on an insight into the said
discussion contained in these paragraphs, would eloquently bear it out that it is inclusive of
NCLAT as well. In para 121 of the judgment, which is already extracted above, the Court
specifically affirmed the decision of the High Court which held that creation of NCLT and
NCLAT was not unconstitutional. In view of this, it is not open to the Petitioner even to
argue this issue as it clearly operate as res judicata."

19. The bar under Section 430 of the 2013 Act being absolute in nature, this Court is of the view that
the jurisdiction to adjudicate the disputes raised in the present case vests with the NCLT.

20. While deciding so, this Court is conscious of the difference between the terms "High Court" and
"Civil Court". Under the Companies Act prior to the amendments, references to the High Court mean
the High Court exercising jurisdiction as a Company Court and not as a Civil Court. Section 434 of the
2013 Act, relating to transfer of the proceedings, is applicable in respect of the Company Court, and
not this Court exercising ordinary original civil jurisdiction under Section 9 CPC. Thus, Section 434 of
the 2013 Act would not have any application in the present case, and the authorities cited in respect of
the said provision would also not be applicable. The NCLT having being vested with all the trappings
of a Civil Court, with the amendments which have now been carried out, the bar under Section 430,
however, is definitely triggered.

21. Coming back to the issue of Section 59 and Section 62, the judgment of the Supreme Court, relied
upon by the Defendants in Ammonia Supplies SC (supra) is categorical. The Supreme Court observed
as under:

"25. Now we proceed to examine the power of the court to rectify the Register of Members
of a company under Section 155. The question raised for the appellant is that the court
under this Act cannot direct an applicant to seek his remedy by way of suit but the court
under the Act having exclusive jurisdiction should decide itself.....................

26..........

27. In other words, in order to qualify for rectification, every procedure as prescribed under
the Companies Act before recording the name in the Register of the Company has to be
stated to have been complied with by the applicant - at least that part as required by the Act
- and assertion of what has not been complied with under the Act and the Rules by the
person or authority of the respondent-Company before the applicant claims for the
rectification of such Register. The court has to examine on the facts of each case whether

https://indiankanoon.org/doc/144383672/ 6/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

an application is for rectification or something else. So field or peripheral jurisdiction of

the court under it would be what comes under rectification, not projected claims under the
garb of rectification. So far exercising of power for rectification within its field there could
be no doubt the court as referred under S.155 read with Section 2(11) and Section 10, it is
the company court alone which has exclusive jurisdiction. Similarly, under Section 446, the
"court" refers to the Company Judge which has exclusive jurisdiction to decide matters
what is covered under it by itself. But this does not mean by interpreting such "court"
having exclusive jurisdiction to include within it what is not covered under it, merely
because it is cloaked under the nomenclature rectification does not mean the court cannot
see the substance after removing the cloak.

28.........29.......

30. All the above indicates the limitation and the peripheral jurisdiction with which court
has to act. In spite of its exclusiveness, it cannot take within its lap outside this scope of
rectification. This is indicated even by Section 155 itself:

"Section 155: Power of Court to rectify Register of Members.-

(1) If -

(a) the name of any person -

(i) is without sufficient cause, entered in the Register of Members of a company, or

(ii) 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 on 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 apply to the Court for rectification of the
Register.

31. Sub-section (1) (a) of Section 155 refers to a case where the name of any person is
without sufficient cause entered or omitted in the Register of Members of a company. The
word 'sufficient cause' is to be tested in relation to the Act and the Rules. Without sufficient
cause entered or omitted to be entered means done or omitted to do in contradiction of the
Act and the Rules or what ought to have been done under the Act and the Rules but not
done. Reading of this sub-clause spells out the limitation under which the court has to
exercise its jurisdiction. It cannot be doubted that in spite of exclusiveness to decide all
matters pertaining to the rectification it has to act within the said four corners and
adjudication of such matters cannot be doubted to be summary in nature. So, whenever a
question is raised the court has to adjudicate on the facts and circumstances of each case. If
it truly is rectification, all matters raised in that connection should be decided by the court
under Section 155 and if it finds adjudication of any matter not falling under it, it may
direct a party to get his right adjudicated by a civil court. Unless jurisdiction is expressly or
implicitly barred under a statute, for violation or redress of any such right the civil court
would have jurisdiction. There is nothing under the Companies Act expressly barring the
jurisdiction of the civil court, but the jurisdiction of the 'court' as defined under the Act
exercising its powers under various sections where it has been invested with exclusive
jurisdiction, the jurisdiction of the civil court is impliedly barred. We have already held
above the jurisdiction of the 'court' under Section 155, to the extent it has is exclusive, the
jurisdiction of the civil court is impliedly barred. For what is not covered as aforesaid the
civil court would have jurisdiction. Similarly we find even under Section 446(1), its words
itself indicate the jurisdiction of the civil court is not excluded. This sub-section states,
'...no suit or legal proceedings shall be commenced...or proceeded with...except by leave of
the court'. The words 'except by leave of the court' itself indicate on leave being given the
civil court would have jurisdiction to adjudicate one's right. Of course discretion to
https://indiankanoon.org/doc/144383672/ 7/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

exercise such power is with the 'court'. Similarly under Section 446(2) 'court' is vested with
powers to entertain or dispose of any suit or proceedings by or against the company. Once
this discretion is exercised to have it decided by it, it by virtue of the language therein
excludes the jurisdiction of the civil court. So we conclude that the principle of law as
decided by the High Court that the jurisdiction of the court under Section 155 is summary
in nature cannot be faulted. "

22. The observations of the Supreme Court in the context of the earlier Act, above make it clear that if
the jurisdiction of the Company Court was exclusive, the jurisdiction of the Civil Court was barred in
respect of power to rectify the register of members. However, the Court therein was dealing with
Section 446(1) of the Companies Act, 1956, in its earlier avatar. The provisions have undergone a sea
change since then. In fact, in Section 446(1) of the Companies Act, 1956 itself the leave of the
`Tribunal' was to be taken after the Act was amended in 2013, i.e., the leave of the CLB had to be
taken.

23. Learned counsel for the Plaintiff places strong reliance on the judgment of the Full Bench of this
Court in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers (Pvt.) Ltd. & Ors. 52
(1993) DLT 252 (hereinafter, 'Ammonia Supplies DHC'), to argue that this Court has jurisdiction. The
reasoning in the said Full Bench judgment was that complex questions cannot be decided by the
Tribunal, as the procedure in the Tribunal was of a summary nature. Moreover, the Tribunal was not
enjoying the same powers as were exercised by the Civil Court at that time. Thus, disputed and
complicated questions could not be raised before the Tribunal. This position no longer remains to be
so, owing to the complete change in the scheme of the NCLT and the powers vested in it.

24. The Plaintiff has relied on a judgment of this Court in Satish Chandra Sanwalka (supra), which was
also decided prior to the constitution of the NCLT in its present form. The constitution of the NCLT
was subject matter of litigation before the Supreme Court of India, and the amended Act came into
effect from 22nd August, 2013 and some of the provisions constituting the NCLT came into effect
from 30th August, 2013 as corrected on 1st January, 2014. Moreover, the learned Single Judge had
applied the ratio of Clausde-Lila Parulekar v. Sakal Papers (P) Ltd. & Ors. (2005) 11 SCC 73
(hereinafter, 'Sakal Papers') and Ammonia Supplies SC (supra), that disputed questions of fact ought to
be decided by the Civil Court. Sakal Papers (supra) while dealing with Ammonia Supplies (supra) was
decided in a fact situation where the matter had remained pending for 18 years before the Civil Court
and the Supreme Court felt it to be grossly inequitable to relegate the parties to an alternate remedy
after the lapse of such a long time.

25. In Jai Kumar Arya (supra), a Division Bench of this Court, dealing with the bar under Section 430
of the 2013 Act, held as under:

"99. While examining the merits of these rival contentions, we are fully aware of the
interpretative principle, now trite in law, that provisions which operate to exclude the
ordinary jurisdiction of civil courts are to be strictly construed, and exclusion of such
jurisdiction is not to be lightly inferred. The principle of exclusion of jurisdiction is,
moreover, never absolute."

26. The bar under Section 430 of the 2013 Act has, therefore, to be strictly construed and there can be
no doubt about that. The Division Bench also considered Dhulabai v. State of M.P. AIR 1969 SC 78
(hereinafter, 'Dhulabai'), and held as under:

"101. As, perhaps, the most authoritative pronouncement on the issue, the Constitution
Bench of the Supreme Court, in Dhulabhai v State of M.P., AIR 1969 SC 78, set out the
following 7 clear principles (of which only the first and last are really relevant to the
present case), to be applied for deciding whether a suit was barred under Section 9 of the
CPC:

"(1) Where the statute gives a finality to the orders of the special Tribunals the civil courts'
jurisdiction must be held to be excluded if there is adequate remedy to do what the civil

https://indiankanoon.org/doc/144383672/ 8/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

courts would normally do in a suit. Such provision, however, does not exclude those cases
where the provisions of the particular Act have not been complied with or the statutory
Tribunal has not acted in conformity with the fundamental principles of judicial procedure.
(2) Where there is an express bar of the jurisdiction of the court, an examination of the
scheme of the particular Act to find the adequacy or the sufficiency of the remedies
provided may be relevant but is not decisive to sustain the jurisdiction of the civil court.
Where there is no express exclusion the examination of the remedies and the scheme of the
particular Act to find out the intendment becomes necessary and the result of the inquiry
may be decisive. In the latter case it is necessary to see if the statute creates a special right
or a liability and provides for the determination of the right or liability and further lays
down that all questions about the said right and liability shall be determined by the
Tribunals so constituted, and whether remedies normally associated with actions in civil
courts are prescribed by the said statute or not. (3) Challenge to the provisions of the
particular Act as ultra vires cannot be brought before Tribunals constituted under that Act.
Even the High Court cannot go into that question on a revision or reference from the
decision of the Tribunals. (4) When a provision is already declared unconstitutional or the
constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari
may include a direction for refund if the claim is clearly within the time prescribed by the
Limitation Act but it is not a compulsory remedy to replace a suit.

(5) Where the particular Act contains no machinery for refund of tax collected in excess of
constitutional limits or illegality collected a suit lies. (6) Questions of the correctness of the
assessment apart from its constitutionality are for the decision of the authorities and a civil
suit does not lie if the orders of the authorities are declared to be final or there is an express
prohibition in the particular Act. In either case the scheme of the particular Act must be
examined because it is a relevant enquiry. (7) An exclusion of the jurisdiction of the civil
court is not readily to be inferred unless the conditions above set down apply."

(Emphasis supplied)"

27. The Division Bench in Jai Kumar Arya (supra), after applying Dhulabai (supra), lays down the
following test:

"102 From the above authorities, the primary indicia, which would govern determination of
the question of whether the jurisdiction of civil courts is, in any particular case, ousted, or
not, would appear to be (i) whether the decision of the tribunal, on which jurisdiction is
conferred, is also attributed finality by the statute, and (ii) whether such tribunal can do
what the civil court would be able to do and is, therefore, an efficacious alternative to the
civil court. Even when these two indicia stand satisfied, the jurisdiction of the civil court
would continue to exist where the action, complained against, violates the statute.

28. If these two tests are applied i.e., as to whether the Tribunal's order is attributed finality and as to
whether the Tribunal would be able to do what a Civil Court could do, it is clear that an order under
Section 59 of the 2013 Act has specific consequences for non-compliance. The order is appealable to
the appellate tribunal. The Tribunal has to apply the principles of natural justice. Under Section 242(2)
(d) of the 2013 Act, the Tribunal can impose restrictions on the transfer or allotment of the shares of
the company. It can also pass an interim order under Section 242(4) of the 2013 Act. Consequences for
non-compliance have also been provided under Section 242(4) of the 2013 Act. The Plaintiffs have a
right to apply Section 242 of the 2013 Act as they own 99.96% shareholding which has been diluted to
21.44%. Any member with more than 1/10th of the issued share capital can approach the Tribunal.
Thus, even as per Jai Kumar Arya (supra), the order being one, which can be passed under Section 242
of the 2013 Act, the NCLT has the jurisdiction. In Jai Kumar Arya (supra), the Court was concerned
with the power of removal of directors, which is distinct from the disputes involved in the present case.
However, by applying the tests laid down therein, it is clear in the facts of this case that involving
issues relating to allotment of share capital, alteration and rectification of the register of members, the
NCLT is `empowered to decide' -leading to the conclusion that this Court has no jurisdiction.

https://indiankanoon.org/doc/144383672/ 9/10
04/02/2022, 12:31 Sas Hospitality Pvt Ltd & Anr. vs Surya Constructions Pvt Ltd & Ors. on 16 October, 2018

29. The Jammu & Kashmir High Court in Bakshi Faiz Ahmad v. Bakshi Farooq Ahmad & Ors. [CIMA
No.08/2018 and MP No. 01/2018 decision dated 18th April, 2018] while dealing with an appeal from
the Trial Court seeking vacation of an interim order, has observed that if there are issues of fraud and
collusion or any other complicated questions, the NCLT would not have the jurisdiction to adjudicate
the same. The High Court, however, holds that the Trial Court can examine this issue in an application
under Order VII Rule 11 CPC, and under those circumstances rejected the appeal. In the present case,
this Court is examining the question of jurisdiction in an application under Order VII Rule 11.

30. In Chiranjeevi Rathnam & Ors. v. Ramesh & Ors 2017 (6) CTC 568, an injunction was sought
restraining the conduct of the EGM, While interpreting Section 430 of the 2013 Act, the Court held
that the Civil Court has no jurisdiction and the suit would be barred under Section 430.

31. In N. Ramji v. Ashwath Narayan Ramji & Ors, [2017] 140 CLA 13 (Mad.) a learned Single Judge
of Madras High Court has held that if issue of title of shares is raised, the same cannot be decided by
the NCLT, but by the Civil Court. Such a question of title has not been raised in the present case.

32. None of the above judgments, would be squarely applicable in the present case, inasmuch as the
question here is whether the issues of further share capital, was contrary to the scheme provided under
Section 62 of the 2013 Act. Such issuance of share capital to the detriment of an existing member is
prejudicial to the said member, as also the interest of the company. Moreover, under Section 242(2) of
the 2013 Act, restrictions can be imposed on the transfer or allotment of shares and passing of such
orders are within the domain of the NCLT.

33. The Legislative scheme having been changed, with the amendments which have brought about and
for all the reasons stated herein above, this Court holds that the present suit is liable to be rejected
leaving the Plaintiff to avail its remedies, in accordance with law before the NCLT.

34. Yet another reason for holding that this Court would have no jurisdiction is fact that the matter is
also pending before the CLB (now transferred to the NCLT at the instance of one of the directors). The
interim order passed by this Court has been in operation since 12th March, 2014. The said interim
order would, continue for a further period of 4 weeks in order to enable the Plaintiff to approach the
NCLT.

35. The plaint is rejected with liberty as provided above. All pending I.As. stand disposed of.

PRATHIBA M. SINGH JUDGE OCTOBER 16, 2018/dk

https://indiankanoon.org/doc/144383672/ 10/10