Tuesday, March 16, 2010

Civil Court's Jurisdiction - Companies Bill, 2009? - Corporate Law Articles - Chartered Accountants India,Taxpayers, CAs India, CA india ,ICAI, Compan

Civil Court's Jurisdiction - Companies Bill, 2009? - Corporate Law Articles - Chartered Accountants India,Taxpayers, CAs India, CA india ,ICAI, Company Secretary ,CS, Cost Accountants, MBA, Finance Professionals

by Durga Rao


We all aware that there is no express provision barring the Civil Courts to entertain certain company disputes under the Companies Act, 1956. We have been seeing the cases where the Civil Court entertains Company disputes if there is no specific remedial measure before the Company Law Board or the Company Court. The issue of Civil Court’s Jurisdiction to entertain certain company matters is also supported by the Constitutional Courts on the ground that there is no specific bar under the existing Companies Act, 1956 barring the Civil Courts in entertaining Company matters and on the ground that the Companies Act, 1956 do no provide all remedial measures to all the shareholders before the Company Law Board or the Company Court.
It is true that adjudicating a company dispute requires specialization and the Civil Court may not effectively adjudicate a Company dispute. We are all aware of the inevitable complications under Company Law. Laudably, an effort has been made to bar the Civil Court’s jurisdiction to entertain company matters in the Companies Bill, 2009 or in the proposed new Companies Act replacing Companies Act, 1956.
Section 391 of the Companies Bill, 2009 dealing with the Civil Court’s Jurisdiction is extracted below:
“391. 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”.
The object of section 391 in the proposed Companies Act is to exclude the Civil Courts in entertaining company disputes and to avoid the jurisdictional ambiguity. Under the existing Companies Act, 1956, shareholders who are qualified to approach the Company Law Board under section 397/398 may choose to approach the Civil Court rather the Company Law Board.
In CDS Financial Services (Mauritius) Limited Vs. BPL Communications Limited and others, (2004) 121 Comp Cases 375, it was held that “when there is no express provision excluding the jurisdiction of the Civil Courts, such exclusion can be implied only in cases where a right itself is created and the machinery of enforcement of such right is also provided by the statute. If the right is traceable to the general law of contracts or it is a common law right, it can be enforced through the Civil Court, even though the forum under the statute also will have jurisdiction to enforce that right. Sections 397, 398 and 408 of the Companies Act, 1956, do not confer exclusive jurisdiction on the company court to grant reliefs against oppression and mismanagement. The scope of these sections is to provide a convenient remedy for minority shareholders under certain conditions and the provisions therein are not intended to exclude all other remedies”.
Now, with the express bar under section 391 of the proposed act, if a remedy is available before the National Company Law Tribunal etc. then, no Civil Court can entertain a suit.
But we need to address an issue as to what is the situation if a particular relief is not available to the shareholders before the National Company Law Tribunal or under the new Companies Act?
Under such circumstances, despite section 391 in the proposed Companies Act, it may be very difficult to bar the Civil Courts in entertaining Company Disputes or it may be difficult to lay down a proposition that no shareholder can approach the Civil Court against the managerial personnel, the management or the Company.
It is true that the Civil Court may not be effective like the proposed National Company Law Tribunal, but, when a remedy is not provided before the Tribunal, the shareholders will obviously be approaching the Civil Courts and it may even be supported by the Constitutional Courts in future.
It is true that the Civil Courts jurisdiction is effectively barred under certain enactments like Securitization Law and it is not usual to see a Civil Court to entertain a dispute under Securitization Act upon which the Debt Recovery Tribunal shall have jurisdiction. It is possible under the Securitization Law in view of the limited scope of the subject matter. Under Securitization Law, it is only about the determination of debt or the legality of the action taken by the Bank under the Act. Only the Bank, the borrowers, the guarantors and in some cases a third party, is interested in a securitization case, but, that is not the case with a Company litigation. The Company Law Board, Company Court or the National Company Law Tribunal as the case may be should consider many issues before passing an order in a Company dispute.
In my opinion, it is very difficult to bar the Civil Court’s jurisdiction as intended with section 391 of the proposed Company’s bill or the new act.
In order to achieve the objective of barring the Civil Court’s Jurisdiction effectively, we need a detailed provision barring the Civil Court’s Jurisdiction and there should be a provision similar to section 151 of C.P.C in the proposed Companies Act giving liberty to the shareholders or the members to approach the Tribunal for the relief which is not specifically provided under the Act. If there is such an arrangement under the proposed Act, the National Company Law Tribunal shall decide the maintainability of the applications or the petitions and can pass appropriate orders.
I am sure that it is very difficult to bar the Civil Court’s Jurisdiction as intended with section 391 of the proposed bill or the proposed new Companies Act. There tend to be lot of litigation on the issue of Civil Court’s Jurisdiction even after the new Companies Act coming into force replacing Companies Act, 1956.

Note:
I have expressed my opinion on the issue and I am aware of the complications in Company Law.

by Durga Rao on CACLub India

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