NCLT has no jurisdiction to decide cause of action over which it has no power under Companies Act: Delhi High Court

The Delhi High Court has ruled that Section 434(1)(c) of the Companies Act cannot be interpreted to confer jurisdiction on the National Company Law Tribunal with respect to the cause of action over which it has no power under the Act (Naresh Dayal vs Delhi Gymkhana Club Ltd). .A single-judge Bench of Justice Mukta Gupta said that even a wide interpretation of Section 434(1)(c) of Companies Act will not confer jurisdiction on NCLT to decide matters which it is not empowered in terms of the Companies Act.."Section 434(1)(c) of the Companies Act directs transfer of all cases pending in District Courts and High Court to NCLT, subject to the NCLT having jurisdiction in terms of Section 241 of the Companies Act and being barred under Section 430 of the Companies Act. Section 434(1)(c) even if expansively interpreted cannot confer jurisdiction in the NCLT to decide matters which it is not empowered in terms of the Companies Act," the Court said. .The Court was dealing with a representative suit filed by seven plaintiffs who were permanent members of Delhi Gymkhana Club. .The plaintiffs grievance was that the Club, a non-profit Company by Guarantee, was conferring "Green Card holder" status on certain category of persons though the same was not provided for in its Articles of Association..The plaintiffs stated that under the Articles of Association (AoA), the Club classified its members in five categories, i.e., Permanent, Garrison, Temporary, Casual and Special Category. However, after attaining the age of 21 years, children of the permanent members continued to use the facilities of the Club upon applying for permanent membership in which case they are issued a Green Card despite the fact that no concept of Green Card is provided in the AoA. .The plaintiffs argued that the facility of green card was not being extended to those children who did not enjoy the facilities of the Club as minors and that such classification was inequitable. .In the suit, the plaintiffs inter alia prayed for a decree declaring Clause 13(3)(b) of AoA to extend Green Card to the children of all the permanent members irrespective of their age and whether they had used the facilities of the Club or not as minors. .The Club argued that the suit was not maintainable as the appropriate forum to deal with the issue was the NCLT under Section 242 of the Companies Act..The Club stated that under Section 242 of the Companies Act, not only was there a provision of the winding up of the company but other issues could also be considered and decided by the NCLT..It was submitted that the word 'any member' in Section 241 of the Companies Act was very wide and that the word ‘member’ under Section 2 (55) included anybody who was subscribing to the company's Memorandum and Articles of Association. .Opposing the argument, the plaintiffs stated that the suit was outside the application of Section 241. .The suit did not allege financial irregularities, fraudulent acts, omission in books of accounts, misconduct on the part of management while conducting the administration of the company in its day to day transaction or wrongful acts committed by the employees and/or staff of the company, it was clarified. .The plaintiffs argued that since the present case concerned enforcement of a civil right relating to interpretation of the Articles of Association, as opposed to corporate rights, the remedy was before a civil court and not NCLT. .The Court observed that before proceeding to decide whether it had jurisdiction to entertain the suit, it had to be determined as to what was the real cause of action in the suit. .It further noted that neither did the suit allege any oppression, misbehavior classification of accounts of the Club nor did it seek winding up or rectification of record. .In the suit, plaintiffs seek equal treatment for all members after membership is granted and permanent injunction against those who are not members but enjoying facilities which are meant only for permanent members, the Court further noted. .Analysing Section 434(1)(c) on transfer of matters to NCLT, the Court stated that although the term ‘including’ in the Section had to be given a broad interpretation, it would not include issues which are not within the jurisdiction of the NCLT. .The Court further observed that Section 242 of the Companies Act contemplates an action before the NCLT when the affairs of the company were being conducted in a manner prejudicial or oppressive to any member or members and would justify the makings of a winding-up order. .However, the plaintiffs did not claim winding up and the cause of action was the manner in which Article 13(3)(b) of the Articles of Association was being interpreted to create an irrational and illegal classification, the Court said. ."The NCLT not being empowered to determine the said cause of action, this Court is of the opinion that the plea of the defendant that the present suit is not maintainable and only a petition before the NCLT is maintainable, is liable to be rejected," the Court concluded. .The plaintiffs were represented by Senior Advocate Sudhir Chandra with Advocates Utkarsha Kohli, Abhimanyu Garg. .Senior Advocate Vikas Singh appeared for the Club with Advocates Nandadevi Deka, Kapish Seth, Shikha Rai..[Read Order]