![Schrödingers Cat of Jurisdiction Schrödingers Cat of Jurisdiction](https://www.livelaw.in/h-upload/2025/01/29/1500x900_583924-live-law-thumbnail-cat-exp.webp)
Is it possible to exist in two states at once, alive and dead, until observed? The thought experiment - 'Schrodinger's cat' offers us the answer to it. On similar lines, jurisdictional boundaries in corporate law often exist in a state of quantum ambiguity, much like Schrödinger's cat—neither fully alive (adjudicatory) nor entirely dead (non-adjudicatory) until the box is opened, that is to say, until a prima facie analysis is run. The Tribunals (National Company Law Tribunal and National Company Law Appellate Tribunal) are tasked with the dual responsibility of assessing their jurisdiction while ensuring disputes are addressed in the most suitable forum. This balancing act becomes particularly delicate when disputes straddle the line between straightforward procedural rectification and complex matters of fraud or contested ownership. Naturally, each case demands a prima facie assessment of facts to ascertain whether the dispute is a matter for the Tribunal's summary jurisdiction or one that requires the deeper evidentiary probe of civil courts. Well, can a principle be curated out of such jurisdictional ambiguity laden with inherent challenges? That is the question that unravels further.
Identifying the fine line
In a utopian world, there would be no disputes and harmony would be the order of the day. However, reality is far from perfect, as disputes are not only inevitable but also an inherent part of human interaction and commerce. The settlement of such disputes requires a proper legal framework that classifies disputes to determine the course of action for their adjudication.
Civil disputes are the bedrock of judicial adjudication, and Section 9 of the Code of Civil Procedure, 1908 ("CPC") being the guardian of civil jurisdiction. This provision allows courts to hear all suits of a civil nature unless explicitly or implicitly barred by statute. These disputes range from breaches of contract to property ownership and claims over title of shares. However, the modern legal landscape recognizes that not all disputes can be effectively addressed under the civil framework. Much like a specialist is required to fine-tune complex machinery, corporate disputes—defined by their technical and commercial intricacies—demand the expertise of specialized forums.
The Companies Act 2013 (“Companies Act”), marked the beginning of a new era in corporate governance by providing for the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) as the sole adjudicating forums for corporate disputes. Section 430 of the Companies Act acts as a legislative firewall by preventing civil courts from entertaining matters that fall within the Tribunals' jurisdiction and demonstrates an intent to expedite corporate adjudication while leveraging domain expertise.
However, the fine line between civil and corporate disputes is often fraught with haze. While matters like rectification of the register of members falls squarly within the NCLT's jurisdiction, matters involving complex issues of fraud or some seriously disputed civil rights, title or any other basic facts which may be the foundation to claim a right, lie beyond the Tribunal's scope of jurisdisdiction. Naturally, jurisdictional overlap can lead to bottlenecks in the procedure, which defeats the very purpose of achieving efficiency that specialized forums are meant to provide.
In a world where disputes are inevitable, the nuances are what matter. It is not purely a procedural issue but a delicate balance between ensuring that justice is served in the forum it deserves and upholding legislative intent in specialized adjudication. In the light of this, before commencing to chalk out a fine line between corporate and civil disputes, the exercise of wrapping one's mind around the provisions that codify such disputes and procedures thereafter is more necessary than compelling.
The lex remains the same
Among a constellation of disputes that arise in the vast cosmos of Modern corporate law, the rectification of the register of members (“rectification”) is akin to Sirius. The essence of 'rectification' (in the context of company law) was eloquently captured by Justice A.P. Misra in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. and Ors., where he propounded:
"The very word 'rectification' connotes something that ought to have been done but by error not done and what ought not to have been done was done requiring correction.
Rectification implies the correctness of an error or removal of defects or imperfections. It implies prior existence of error, mistake or defect."
This definition revealed the remedial nature and compliance-oriented nature of rectification, aimed at addressing mistakes or wrongful entries in a company's records to uphold the rights of its members. Under the Companies Act 1956 (“erstwhile Companies Act”), the legal framework for addressing such disputes was laid out in Section 111A and Section 155. On one hand, Section 111A provided a statutory remedy for disputes relating to the transfer and transmission of shares in public companies, empowering aggrieved parties to approach the Company Law Board (“CLB”) for relief. On the other hand, Section 155 allowed the CLB to order the rectification of the register of members in cases of wrongful or erroneous entries.
The provisions governing rectification underwent a metamorphosis with the introduction of the Companies Act. Section 59 of the Companies Act laid down a route for any person aggrieved by an unjustified refusal or failure to transfer or transmit securities to seek rectification of the register of members. Not only provisions such as Section 59 that empowered the Tribunals (“NCLT and NCLAT”) as the appropriate adjudicatory body for such corporate disputes, ensuring a specialized, swift, and efficient resolution mechanism, but additionally, Section 430 explicitly ousts the jurisdiction of civil courts over matters exclusively within the purview of the Tribunals, reinforcing the Tribunals' central role in adjudicating corporate disputes.
Through the Judicial Lens
Matters of legal parlance can best be understood through the judicial lens. Given that, a similar exercise as demonstrated by the insights from a series of pivotal judgments hereinafter is undertaken in the context of the present narrative. Each peculiar judgment that forms part of this section illuminates the factual matrix (wherever deemed necessary) in order to provide a succinct backdrop followed by the insights and observations of the concerned Court/Tribunal. Finally, the entire exercise boils down to a conclusive finale in the form of key takeaways to squeeze the principles to later tailor an understanding.
The matter of Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. and Ors. (“Ammonia Supplies”) involved a rather interesting dispute where the Punjab High Court, Circuit Bench at Delhi directed Ammonia Supplies Corporation Pvt. Ltd. (“Appellate-Company/AC”) to wind up by way of liquidation. However, in 1978, the sole beneficiary obtained a stay of proceedings and started to manage the company. Notably, the AC claimed to have invested ₹1,26,500 in the year 1977 to acquire 50% shares in Modern Plastic Containers Pvt. Ltd. (“Respondent – Company/RC”) supported by balance sheets and income tax records. Things took a drastic turn upon the death of one of the Managing Directors of the RC triggering severe disputes that led to friction among the RC's Stakeholders. A storm of allegations thus followed wherein according to the AC, the real intention of the RC was fraudulent and denied the rightful shareholding, while the RC had disowned the claim, thereby alleging that the AC had forged a letter (dated June 7, 1984), along with other documents, and, in fact, no payment entry was made in the accounts. The petition was dismissed by both the Company Judge and the High Court on the ground that jurisdiction of Section 155 of the erstwhile Companies Act is summary and fraud or disputed facts cannot be dealt with by it.
At the final stage, the Supreme Court duly observed that any question raised within the peripheral field of rectification, it is the Court under Section 155 which would have exclusive jurisdiction. However, in case any claim is based on some seriously disputed civil rights or title, denial of any transaction or any other basic facts which may be the foundation to claim a right to be a member and if the court satisfies itself with a prima facie assessment that such claim does not constitute to be a rectification but instead seeking adjudication of basic pillar some such facts falling outside the rectification, its discretion to send a party to seek his relief before the civil court first for the adjudication of such facts. Otherwise under the garb of rectification one may lay claim of many such contentious issues for adjudication not falling under it.
One can fairly say that jurisdictional clarity is most often on thin ice in matters of corporate dispute, and one such instance surfaced in the matter of Shashi Prakash Khemka (Dead) Through Legal Representatives and Anr. v. NEPC Micon (Now NEPC India Limited) and Ors. (“Shashi Prakash Khemka”). Shashi Prakash Khemka addressed the jurisdiction of the CLB under Section 111A(3) of the erstwhile Companies Act, as amended by the Depositories Act, 1996. The Respondents filed a petition for rectification of the register of members, alleging violations of SEBI laws and other statutory provisions. Later on, the CLB initially dismissed the petition, stating the remedy was unavailable for transactions predating the '1997 Amendment' to Section 111A (3). However the appeallant approached the CLB yet again and argued that the amendment introduced a statutory recognition of violations of "Any other law for the time being in force" and claimed that the amendment should apply retrospectively. Thereafter, the CLB allowed the petition in favour of the appellant (CLB Order). The matter was then taken to the High court of Madras wherein the High court reviewed whether the retrospective effect was applicable and whether limitation issues precluded CLB jurisdiction. Eventually, the High Court of Madras reversed the CLB Order leaving the Appellants to the remedy of civil suits on the issue of transfer of shares.
While examining the scope of section 155, view was taken that the power was fairly wide, but in case of a serious dispute as to title, the matter could be relegated to civil suit squarely reinforcing the principle etched in Ammonia Supplies. Considering this, the Supreme Court upheld that though the cause of action had arisen at a stage prior to the 2013 enactment (Companies Act), relegating the parties to a civil suit would not be the appropriate remedy, especially considering that Section of the Companies Act is widely worded. Thus, Appellants were relegated to remedy before the NCLT under the Companies Act.
If the saying “Impersonation deceives, fraud destroys” were to be understood through a case, then the matter of Adesh Kaur v. Eicher Motors Ltd. and Ors. (“Adesh Kaur”) would come to mind. What transpired in the said matter was that there were two Ms. Adesh Kaur, one being 'The Impersonator” and the other being the original shareholder. The appellant, a Punjab resident, acquired 903 equity shares in Eicher Motors (“Respondent- Company/RC”) in 1994-1995. In 2012, the impersonator, fraudulently changed the address to Mumbai without following the required procedures and forged the Appellant's signature to execute an indemnity bond for issuing duplicate share certificates. Photocopies of certificates issued by Respondent No. 2, the impersonator transferred to a certain Vikas Tara Singh (Respondent No.8) with further forged signatures. In 2014, the Company Secretary of Respondent No.1 discovered the occurrence of fraud and informed the Appellant. Thereafter, the Appellant requested for fresh issuance of share certificates, which were not issued despite reminders. Consequently, the Appellant filed a company petition before the CLB, later taken up under the Amended Act (Companies Act) by the NCLT. Consequently, in appeal, the Appellate Tribunal referred to the fact that a criminal complaint and SEBI Investigation were both pending, as a result of which it would not be correct for the Tribunal to exercise the powers to rectify the register under Section 59 of the Companies Act. Thereafter, the NCLT Order was set aside and the Appellants were relegated to a suit.
In summation, the Supreme Court was of the view that the Appellate Tribunal in relegating the Appellant to a further proceeding (suit) was not correct. For that reason, the Apex Court set aside the Appellate Tribunal's order and reinstated that of the Tribunal. In other words, if the prima facie assessment by the Tribunal upon the application of the Schrodinger cat's principle, reveals an 'open and shut case' of fraud which demanded no further probe, aptly showcasing who is the victim and who the perpetrator; the dispute falls squarely in the jurisdiction of the Tribunal.
In a battle over legacy shares, a pivotal case unfolded into the matter of Jai Mahal Hotels Pvt. Ltd. v. Devraj Singh and Ors. (“Jai Mahal Hotels”), where the Supreme Court drew a bold line between family disputes and corporate rectification, reshaping the contours of jurisdiction. The matter gained impetus when Late Maharaj Jagat Singh (LMJS) left his shares, including those in Jai Mahal Hotels Pvt. Ltd., to his mother, Gayatri Devi (GD), in his 1996 will. Following the death of LMJS in 1997, a 2009 succession certificate issued in favor of GD and LMJS's children, Devraj Singh and Lalitya Kumari (DR Group), led to GD transferring the shares to them through a transfer deed and her will prior to her death in 2009. When the company refused to accept the share transfer from the DR Group, they moved to the CLB. Pertinently, the UD (Urvashi Devi) Group, which happens to be another limb of the family challenged the succession certificate on the grounds of forgery and instead relied on an earlier will made by LMJS. Thereafter, the CLB dismissed the appeal of the DR Group on grounds of jurisdiction; however, the High Court sustained the succession certificate and transfer deeds, ordering rectification of share registers in favour of the DR Group.
Thereafter, the UD Group approached the Supreme Court, which in turn found that the CLB had misinterpreted jurisdiction, as the matter fell squarely within the scope of rectification and did not involve complexities warranting civil court adjudication. As a result, by affirming the High Court's decision to direct rectification in Jai Mahal Hotels, the Supreme Court reinforced the principle that disputes centered on straightforward corporate issues, such as rectification, must be adjudicated within the framework of specialized forums like the Tribunal.
Moving on, the matter of IFB Agro Industries Ltd. V. Sicgil India Ltd. And Ors. (“IFB Agro”) took place when a listed company, the Appellant, claimed that Respondent No.1 and related parties Respondents Nos. 2-6 started buying shares since a rejected business proposal in the year 2003. Cumulatively, they crossed the threshold of 5% on January, 2004, and then obligations to disclose arose under SEBI (SAST) Regulations 1997 and SEBI (PIT) Regulations 1992. The Appellant, discovering these violations through internal investigations, filed a petition under Section 111-A of the erstwhile Companies Act, for rectification of register and buyback of shares exceeding 5%. The Tribunal decreed in favour of the Appellant, holding violation of SEBI regulations, debarring Respondents from exercising rights over excess shares and authorized buyback. Per contra, the Appellate Tribunal set aside the Tribunal's Order.
Thereafter, the matter reached the Supreme Court which reiterated the principle from Ammonia Supplies that the Tribunal's power to correct the register is well-known and consistently applied, but will not operate beyond the remit of rectification. The Apex court recognized that violation of Securities Laws (SAST Regulations/ PIT Regulations) were not for NCLT to adjudicate as Securities Laws provide for a complete code for adjudication of such violation alongside providing for a specialised regulator i.e SEBI. Therefore, SEBI shall have exclusive and special jurisdiction, which cannot be short circuited by making an application under section 111A of the erstwhile Companies Act on the ground that there exists with CLB/ NCLT a jurisdiction parellel to that of SEBI with regards to violation of Securities Law. For this reason, the Supreme Court opined that the appeallant was not justified in invoking the jurisdiction of CLB under section 111A of the erstwhile Companies Act for the violation of Secuurities Law.
The celebrated judgment of Chalasani Udaya Shankar and Ors. v. Lexus Technologies Pvt. Ltd. and Ors. (“Chalasani Udaya Shankar”) requires more than a cursory glance at the factual matrix of what transpired. The Appellants claimed to have paid ₹14.67 crores to one of the Respondents (No.2) against shares in Lexus Technologies based on the understanding between the two parties in regard to the trust placed between them for the transaction. The Appellants aver that three of Respondents (namely Nos. 2, 3, and 4) breached their trust by submitting fraudulent financial statements that would remove their shareholding from the company records. Thereafter, the Respondent (No. 2) denied any sale of shares, stating that the money was part of a private arrangement with a friend, "R," who routed ₹14.66 crores through the Appellants as intermediaries, and ₹9 crores returned to "R" and ₹5.66 crores retained by him. As a result, the allegations of fraudulent manipulation of company records by the Appellants clashed with the assertions of a personal financial arrangement made by Respondent (No. 2), turning the dispute into an extremely complex blend of corporate and individual interests.
Ultimately, the Tribunals (“NCLT and NCLAT”) dismissed the petitions, citing the lack of jurisdiction to adjudicate complex disputes and fraud allegations, relegating the matter to civil courts. The Appellants challenged these decisions in the Supreme Court where it was upheld that neither the Tribunal thoroughly examined the material evidence or addressed critical factual disputes raised by the Appellants. Both Tribunals relied heavily on the unverified narrative of the Respondent (No.2) and failed to consider that the Appellants paid the entire consideration for the shares. For this reason, the Supreme Court set aside the judgments of NCLT and NCLAT. Consequently, the case was remanded to the NCLT, for a fresh review on merits.
Tailoring an Understanding
Things seldom float aimlessly in a gray area, this is exactly when chalking out a fine line segregates them for tailoring a coherent understanding. The aforementioned approach squarely applies to the jurisdiction in corporate disputes, where each dispute adds complexity and every decision weaves clarity into the legal framework. The judgments explored so far illuminate a principle: while Tribunals (“NCLT and NCLAT”) hold the mandate to resolve corporate disputes efficiently, their jurisdiction must remain firmly rooted in the procedural and statutory bounds of the Companies Act. Beyond this, when fraud (excluding 'open and shut cases') or ownership disputes emerge—matters akin to uncharted patterns of the gray area—Tribunals ought to give way to civil courts to ensure justice is rendered with precision and depth.
The very nucleus of this principle resides in the thought experiment conducted by Erwin Schrodinger (Physicist), famously called 'The Schrodinger's Cat'. The idea is that if you seal a cat in a box with something that can eventually kill it, you won't know if the cat is alive or dead until you open the box. So, until you open the box and observe the cat, the cat is simultaneously dead and alive. Analogous to this, until the Tribunals open the box containing the facts of the dispute with a prima facie approach, the Tribunal's jurisdiction is simultaneously both, attracted and ousted. To ascertain jurisdiction, the Tribunals ought to run a prima facie assessment. It is, therefore, in the realm of rectification disputes that the principle “Schrodinger's cat” is an apt metaphor to describe the intricate challenge of jurisdiction.
Such a view was achieved in Ammonia Supplies more than two decades ago, and even in recent times, the view remained unchanged as showcased by the rationale of Chalasani Udaya Shankar, mainly propounding that the tribunals (NCLT & NCLAT) should have examined itself to see whether even prima facie what is said is a complicated question or not. Even dispute of fraud, if by a bare perusal of the document or what is apparent on the face of it on comparison of any disputed signature with that of the admitted signature, the Tribunals is able to conclude no fraud, then it should proceed to decide the matter and not reject only because fraud is stated.
Shashi Prakash Khemka held that simple rectification matters—devoid of substantive intricacies—are squarely covered by the Tribunal's statutory provision, which was exactly what Section 430 aimed to achieve. It said that relegating the parties to civil suit now would not be the appropriate remedy, especially considering the manner in which Section 430 of the Companies Act is widely worded. Likewise, Jai Mahal Hotels highlighted the thin line between rectification and issues alien to it; the Supreme Court underscored that straightforward matters of share transfer fall within the Tribunal's jurisdiction, leaving unrelated complexities to civil courts.
In Adesh Kaur, The Tribunal was absolutely correct in not relegating the Appellant to any further proceedings inasmuch as this is 'an open and shut case of fraud' in which the Appellant had been the victim, and Respondent, the perpetrator. In, IFB Agro, on the lines of Zandu Pharmaceutical Works Ltd. v. Devkumarvaidya, the Supreme Court observed that in a case of violation of the SEBI Regulations, CLB/Tribunal cannot exercise rectificatory jurisdiction unless and until SEBI, in the very first instance, decides of there has been a violation or not. In other words, reaffirmed jurisdictional boundaries, where the Tribunal's role was tied to SEBI's prior validation of regulatory breaches. Moreover, the rectification must relate to and be confined to facts that are evident and need not venture into a full-fledged trial or proceeding.
Lastly in Chalasani Udaya Shankar, the Tribunals were found hesitant to adequately probe material facts, and therefore the Supreme Court relegated the matter back to the NCLT for proper review. This would mean that the NCLT exercising jurisdiction under Section 59 of the Companies Act has to examine the factual issues to ascertain the substance of the issue before it after removing the cloak of the form of the application. Collectively, the crux of these pivotal judgments makes plain the fact that the Tribunals ought to open the box and atleast objectively run a prima facie assessment as to whether a matter falls within the Tribunal's jurisdiction (the cat is alive) to rectify the errors or is beyond the four corners of the Tribunal's jurisdiction (the cat is dead) thereby demands an in-depth examination of the substantive dispute by the civil courts or other appropriate forums.
All in all, these judgments set forth a dual mandate: Tribunals must uphold their specialized role by resolving procedural disputes with speed and expertise, while simultaneously exercising judicial prudence to identify cases warranting redirection to civil courts. In doing so, the courts and Tribunals collaboratively ensure that the integrity of corporate adjudication remains unblemished, and justice is served without being entangled in the quantum ambiguity of jurisdiction.
Authors: Adv. Ravi Prakash (Associate Partner), Adv. Mohit Sirohi (Associate), Adv. Vishal Jain (Associate), Adv. Siddhant Sekhri (Associate) At Corporate Professionals Advisers & Advocates. Views Are personal.