What the NCLAT held on jurisdiction of Company Law Tribunals in Section 59 matters
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What the NCLAT held on jurisdiction of Company Law Tribunals in Section 59 matters

Meera Emmanuel

The National Company Law Appellate Tribunal (NCLAT) recently reiterated that company law cases now fall within the jurisdiction of the National Company Law Tribunals even if they involve contentious or complex issues. This is in view of the bar on civil court jurisdiction under Section 430 of the currently prevailing Companies Act, 2013.

The Bench of AIS Cheema and Balvinder Singh passed a judgment to this effect while allowing an appeal filed against the order of the Hyderabad Bench of the National Company Law Tribunal (NCLT).

Background

A petition had been filed under Section 59 of the 2013 Companies Act before the NCLT, Hyderabad, seeking a rectification in the Register of Members of a company. The dispute involved allegations that certain Compulsory Convertible Debentures (CCD) had been converted without appropriate consent.

It was contended that the CCDs were converted contrary to the applicable Articles of Association following a board meeting held without the appropriate quorum. The petitioner had approached the NCLT to rectify the Register of Members with respect to entries concerning securities that had been issued in favour of the appellant against the conversion of CCDs.

However, the NCLT had declined to entertain the petition, stating that the issues raised were complex or contentious issues which required examination of the Insolvency and Bankruptcy Code (IBC), 2016 as well as the Arbitration Act, 1996.

In doing so, it also relied on Supreme Court’s order in Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. and others, which had held that in case of a serious dispute as to title, the matter could be relegated to a civil suit.

The appellant challenged this order, pointing out that the Ammonia Supplies case was no longer good law after the 2013 Act. In the appeal before the NCLAT, it was highlighted that Section 430 of the 2013 Companies Act bars the jurisdiction of civil courts in company law matters.

It was further argued that in view of Section 430, even if there are contentious issues relating to company matters, even under Section 59 or under any other Section of the Act, the same can be and have to be decided by the NCLT. 

The respondents countered by arguing that the contentious issues involved in the case lay beyond the NCLT’s jurisdiction.The contentious issues cited included those relating to arbitration, the effect of invoking IBC proceedings, the interpretation of an Investment Agreement and the Articles of Association.

NCLAT Verdict

The NCLAT eventually concluded that,

In the present matter, firstly, we are of the view that there were really no complex questions involved and even if it was to be said that there were any complex questions, the same had to be decided by the NCLT and in Appeal, this Tribunal is bound to consider whether or not entry made in the Register of Members could be upheld.” 

It was noted that in the Shashi Prakash Khemka case, the Supreme Court had observed that if a dispute had emerged after the 2013 Act, “the civil suit remedy would be completely barred and the power would be vested with the National Company Law Tribunal (NCLT) under Section 59 of the said Act.”

This changed context had also been considered by the NCLAT in Smiti Golyan & Ors. Vs. Nulon India Limited & Ors. In the Smiti Golyan case, the NCLAT had reiterated the exclusive jurisdiction of company law tribunals in company law matters.

In this backdrop, the NCLAT proceeded to reassert the exclusive jurisdiction of company law tribunals in company law matters. In the present case, it rejected the contention that the company law tribunal would not have jurisdiction to look into the question of rectifying company registers because it involved complex questions. Pertinent observations made to this effect include,

It is apparent that now even otherwise, exclusive jurisdiction with regard to Section 59 is of the NCLT. NCLT would now clearly have jurisdiction to deal with rectification and all questions including incidental and peripheral questions raised with regard to rectification for the purpose of deciding legality of the rectification. What could earlier be looked into to see if prima facie made out can now be considered if proved to justify rectification even if it was to be said to be complicated question

we are of the view that with change of law now under Section 59 of the Act, NCLT can deal with rectification and all questions including incidental and peripheral questions raised with regard to rectification for the purpose of deciding legality of the rectification.

NCLT  which exercises widest possible powers in a matter under Section 241, 242 of the Act; which even otherwise is expected to always keep interest of the Company in forefront, cannot be treated as unequipped only because the Petition is under Section 59 of the Act.”

The main dispute concerning improper conversion of CCDs and subsequent entries in the Register of Members was decided in favour of the appellant on merits. The NCLAT thus set aside the NCLT judgment.

Senior Advocate Arun Kathpalia and Advocates Lzafeer Ahmad, Krishnendu Datta, Parinaz Vakil and Bani Brar appeared for the appellant.

Advocates Yogesh Kumar Jagia, Tanya NegiSiddharth Mehta, Abhay Pratap Singh, Anshuman Mozumdar, Sujoy Chatterjee and Satendra K Rai appeared for various respondents.

Read the NCLAT judgment:

NCLAT-Judgment-May-28-2019.pdf
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