NCLT Hyderabad: Tribunals Have Jurisdiction Under S. 59 Of Companies Act To Refer Seriously Disputed Questions To Civil Court For Detailed Investigation

It held that:

“The only embargo on the Jurisdiction of the Tribunal constituted under the Companies Act 2013, while exercising its rectificatory jurisdiction under section 59 of the Companies Act 2013 is 'if any seriously disputed questions arise, the Tribunal, should relegate the parties to a Civil Court, which is more appropriate for investigation and adjudication of such disputed questions.”

Background Facts:

Mr. Gireesh Sanghi (Petitioner) and his family hold 4,87,499 equity shares constituting 48.76% of the total paid-up share capital of Sanghi Cements Limited (Company). Mr. Ravi Sanghi (Respondent No.2) and his family hold 4,87,501 equity shares, also amounting to 48.76% of the shares.

On 19.12.2019, while inspecting the records of the Company filed with the Registrar of Companies, the Petitioner discovered that Respondent No.2 had filed Form PAS-3, indicating that a Board Meeting allegedly held on 21.03.2014 had allotted 85,00,000 equity shares to Respondent No.2. This increased Respondent No.2's shareholding to 94.61%, reducing the Petitioner's shareholding to 5.13%.

The Petitioner, Director of the Company, argued that he never received notice of such Board Meeting and that without his consent, no Special Resolution could have been passed as required under Section 81(1A) of the Companies Act, 1956. Additionally, no Board or General Body Meetings have been held since 2008. Therefore, he claimed that Respondent No.2 committed fraud to illegally increase his shareholding and to usurp valuable assets such as the land allotted by the state government for a factory and a limestone quarry license of about 1000 acres.

Therefore, the Petitioner filed a petition under Section 59 of the Companies Act, 2013 to declare the allotment of 85,00,000 equity shares to Respondent No.2 as illegal and void and to direct the company to rectify the Register of Members, removing Respondent No.2's name for the 85,00,000 shares, restoring the shareholding.

NCLT Verdict:

The NCLT Hyderabad dismissed the petition and referred the matter to the Civil Court for a detailed and proper adjudication.

The Tribunal on the issue of Limitation observed that under Article 137 of the Limitation Act, the three-year period begins when the right to apply accrues. It ruled that the petitioner's claim of discovering the information of allotment of shares to Respondent No. 2 only on 20.12.2019 during a delayed inspection of the MCA website is not appropriate when the same website also showed annual returns from 2014 reflecting the said allotment. NCLT noted that since the special resolution under Section 81(1A) of the Companies Act, 1956 passed on 21.03.2014 to increase the company's share capital and allot shares to Respondent No.2, the petition by the petition is barred by limitation.

The Tribunal also observed that Sections 38 of the Companies Act, 1913, Section 155 of the 1956 Act, Section 111A (introduced by the 1996 Amendment to the 1956 Act), and Section 59 of the Companies Act, 2013 all maintain the essential ingredients of the Tribunal's rectification powers.

NCLT Hyderabad relied upon the Supreme Court's decision in IFB Agro Industries Limited v. SICGIL India Ltd & Ors, wherein it observed that Section 430 of the Companies Act, 2013 does not remove the rectification or other jurisdictions of the Tribunal or Appellate Tribunal under this Act or any other law in force.

The Supreme Court in the said decision had clarified when the Tribunal should exercise its rectification jurisdiction under Section 59 of the Companies Act, 2013, and when parties should be referred to a Civil Court. The said ruling did not confer new jurisdiction or remove existing jurisdiction under Section 59 of the Companies Act, 2013.

The Tribunal asserted that both the Civil Courts and the Tribunal have jurisdiction under the Companies Act. However, when serious disputes arise, the Tribunal should refer parties to a Civil Court for a more thorough investigation and adjudication.

NCLT Hyderabad noted that in the present case issues such as illegal transfer of shares, disputed family settlements, non-payment of consideration for shares, significant financial losses, and violation of status quo orders require a more detailed and deeper investigation.

In conclusion, the Tribunal observing its jurisdiction to be of a summary and rectificatory nature under Section 59 of the Companies, Ac, 2013 found it more appropriate to refer the parties to a Civil Court.

Case Title: Mr. Gireesh Sanghi vs. Sanghi Cements Limited and Anr.

Case No.: CP NO. 5/59/HDB/2020

Counsel for Petitioner: Shri S. Chidambaram, PCS, Shri Yogesh Jagia, and Shri Harshit Ratra, Advocate

Counsel for Respondent: Shri Avinash Desai, Sr. Advocate assisted by Shri Kopal Sharraf and T. Vijay Kumar Reddy, Advocates

Date of Judgment: 07^th June, 2024

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