Order 1

Order Details: Notice of Motion
Pdf Text: 1 Draft N/M in S.C.SUIT no.1109-20
IN THE CITY CIVIL COURT FOR GREATER BOMBAY
AT MUMBAI.
DRAFT NOTICE OF MOTION
IN
SHORT CAUSE SUIT NO. 1109 OF 2020
(CNR no. MHCC01-004033-2020)
1. Mr. Madhukar Vishnu Talwalkar
Age : about 87 years,
residing at C-37/40, Pandurang Society,
Near Sun-N-Sand Hotel, Juhu, Mumbai-49.
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2. Mr. Girish Madhukar Talwalkar
Age : about 59 years,
residing at 101, Disha Aprts.,
Gulmohar Cross Road No.7, Opp. Costa Coffee,
JVPD Scheme, Mumbai-28.
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3. Mr. Prashant Sudhakar Talwalkar
Age : about 58 years,
residing at 26/27, Sheesh Mahal,
Pali Hill Dmonte Park Road,
Bandra, Mumbai-50.
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Plaintiffs
Versus
1. Mr. Vinayak Ratnakar Gawande
Age : about 62 years,
residing at A-231, Twin Towers,
Twin Tower Lane, Opp. Siddhivinayk Temple,
Prabhadevi, Mumbai-400025.
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2. Mr. Harsha Ramdas Bhatkal
Age : about 58 years,
residing at N-5, Prathamesh CHS,
Off Veer Savarkar Road,
Prabhadevi, Mumbai-400025.
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2 Draft N/M in S.C.SUIT no.1109-20
3. Mr. Dinesh Shriniwas Rao
Age : about 53 years,
residing at H-304, Krishna Residency,
Atmaram Compound, Behind Sunder Magar,
Malad-West, Mumbai-400064.
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4. Mr. Ananta Ratnakar Gawande
Age : about 53 years,
residing at A-173, Twin Towers,
Twin Tower Lane, Opp. Siddhivinayk Temple,
Prabhadevi, Mumbai-400025.
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5. Mrs. Monika Khatri
Age : not known,
residing at Talwalkars Better Value Fitness Ltd.,
801-813, Mahalaxmi Chambers, 22, Bhulabhai
Desai Road, Mumbai-400 026.
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6. KPMG India, Lodha Excelus,
1st to 5th Floors, Apolo Mill Compound,
N.M. Joshi Road, Lower Parel,
Mumbai-400011 Through
Ms. Poonam Thakar, Director,
Risk Consulting, forensic Audit Department
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7. Talwalkars Better Value Fitness Ltd.,
801-813, Mahalaxmi Chambers, 22, Bhulabhai
Desai Road, Mumbai-400 026.
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Defendants
Appearances:-
Ld. Advocate Mr. Rajeev Matkar for the Plaintiffs.
Ld. Advocate Mr. P. D. Gandhi for Defendants no.1 to 5.
CORAM : HIS HONOUR JUDGE
SHRI C.V. MARATHE
(Court Room no. 4)
DATED : 23rd October, 2020.
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3 Draft N/M in S.C.SUIT no.1109-20
O R A L O R D E R
1. By instant Notice of Motion, the defendants no. 1 to 5
have prayed to reject the plaint for want of jurisdiction to try and
entertain the suit (Under Order VII Rule 11 of Code of Civil
Procedure, 1908).
2. The defendants have contended that the plaintiffs are
challenging legality, proprietory and validity of the board resolution
of defendant no.7 Company which is matter of internal governance
of the Company. It is contended that in view of Section 430 of The
Companies Act, 2013 jurisdiction of Civil Court in respect of matters
under the said act is barred and National Company Law Tribunal
(NCLT) has exclusive jurisdiction to try all matters under the
Companies Act (2013) including those matters that are contentious
and complex issues. For all the aforesaid contentions, the defendants
have prayed to reject the plaint. The Notice of Motion is resisted by
the plaintiffs.
3. The Ld. Advocate for the defendants has cited judgment
in Chiranjeevi Rathnam and ors. Vs. Ramesh and ors. [2017 SCC
Online Madras 23049] to show that jurisdiction of Civil Court is
barred under Section 430 of the Companies Act, 2013. In that
matter the legal issue for decision before the Hon’ble High Court
was “Whether the Civil suit to declare the appointment/co-option of
some of the defendants/Directors of a private limited Company as
illegal and void is maintainable?”. The Honourable Court, after
elaborate discussion arrived at a conclusion in paragraph no.16 as
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under :
16. The relief sought and cause of action as pleaded are
related to the indoor management of a Private
Limited Company. The plaintiffs, at one breath, say
that they are non-members. If so, they cannot have
any locus standi to question the internal affairs of
the Company. As an individual, if they have any
grievance under common pleadings nor the cause of
action disclose any infringement of civil right vested
on them as individual. The allegations are all
related to the Company’s management alleging
oppression and coup to take-over the management
of the Company and violation of procedures in
convening Extraordinary General Body Meeting
(EGM). All these allegations can have relevancy to
the plaintiffs only in their status as Directors of the
first defendant’s Company and not as individual.
From the above, it can be seen that the matter was
relating to complaint of oppression or mismanagement of the
Company which was found to be prejudicial to the interest of the
Company or to public. In that factual background, the Honourable
Madras High Court rejected the plaint.
4. In the case of Kanumuru Sridhar Reddy and ors. Vs.
Renovau Telecom Private Limited and ors. [2010 SCC Online CLB
90] the petition was under Section 111, 397 and 398 of the
Companies Act, 1956 alleging various acts of oppression and
mismanagement in the affairs of Respondent no. 1/Company. Six
prayers were made including declaration that the board resolution
dated 12.06.2009 changing the registered office of the Company and
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the consequent Form no.18 as null and void. The Company Law
Board eventually concluded that the complainant made out a case of
oppression and mismanagement and granted all the reliefs including
the above relief of declaring the board resolution dated 12.06.2009
as null and void. Relying on this judgment Ld. Advocate for the
defendants argues that this judgments clearly applies to the facts of
the present case because the plaintiff is challenging the board
resolution dated 16.01.2020. After careful reading of the said
judgment in
toto there were multiple allegations against the
respondents regarding oppression and mismanagement and one of
them was the board resolution dated 12.06.2009. The respondents
therein did not turn up to challenge the said petition and ex-parte
order was passed by the Company Law Board. Therefore, the reliefs
were granted by the board as it arrived at conclusion that the
petitioner succeeded in making out the case of oppression and
mismanagement and it was not just to wind up the Company. This
decision was given in the backdrop of peculiar facts of the said case
and therefore, it can’t be used as precedent.
5. Since the plaintiffs have alleged ‘fraud’ in the suit, Ld.
Advocate for the defendants has also pressed into service judgment
in Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka
and ors. [2020(1) ALT42] to buttress his argument that the NCLT
and NCLAT have jurisdiction to enquire into question of fraud. After
careful reading of background facts of the said case, it can be
gathered that the Corporate Debtor held a mining lease granted by
the Government of Karnataka, it was to expire by 25.05.2018,
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though the notice for premature termination of the lease was
already issued on 09.08.2017 on the allegations of violation of
statutory Rules and the terms and conditions of the lease deed, no
order of termination was passed till the date of initiation of the
Corporate Insolvency Resolution Process. Therefore, it was a
litigation between Company and Government of Karnataka. The
Honourable Appex Court considered provisions of Section 63 of
Insolvency and Bankruptcy Code, 2016 and Section 180 thereof and
after elaborate discussion arrived at a conclusion that the NCLT is
competent to enquire into allegations of fraud. Paragraph no. 47 of
the said judgment discusses the above issue and reads as under :
47. This question has arisen, in view of the stand taken
by the Government of Karnataka before the High
Court that they chose to challenge the order of the
NCLT before the High Court, instead of before
NCLAT, due to the fraudulent and collusive manner
in which the CIRP was initiated by one of the
related parties of the Corporate Debtor themselves.
In the writ petition filed by the Government of
Karnataka before the High Court, it was specifically
pleaded (i) that the Managing Director of the
Corporate Debtor entered into an agreement on
06.02.2011 with one M/s. D. P. Exports, for
carrying out mining operations on behalf of the
Corporate Debtor and also for managing its affairs
and selling 100% of the extracted iron ore; (ii) that
the said M/s. D. P. Exports was a partnership firm
of which one Mr. M. Poobalan and his wife were
partners; (iii) that another agreement dated
11.12.2012 was entered into between the Corporate
Debtor and a proprietary concern by name M/s. P.
& D. Enterprises, of which the very same person
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namely, Mr. M. Poobalan was the sole proprietor;
(iv) that the said agreement was for hiring of
machinery and equipment; (v) that a finance
agreement was also entered into on 12.12.2012
between the Corporate Debtor and a Company by
name M/s. Udhyaman Investments Pvt. Ltd.,
represented by its authorized signatory Mr. M.
Poobalan; (vi) that there were a few communication
sent by the said Mr. Poobalan to various
authorities, claiming himself to be the authorized
signatory of the Corporate Debtor; (vii) that an
MOU was entered into on 16.04.2016 between the
Corporate Debtor and M/s. Udhyaman Investments
Pvt. Ltd., represented by the said Mr. Poobalan,
whereby the Corporate Debtor agreed to pay
Rs.11.5 crores; (viii) that the said agreement was
purportedly executed at Florida, but witnessed at
Chennai; (ix) that Mr.Poobalan even communicated
to the Director, Department of Mines & Geology as
well as the Monitoring Committee, taking up the
cause of the Corporate Debtor as its authorized
signatory; (x) that the CIRP was initiated by M/s.
Udhyaman Investments Pvt. Ltd. Represented by its
authorized signatory, Mr. Poobalan; (xi) that the
Resolution Applicant namely, M/s. Embassy Property
Development Pvt. Ltd. as well as the Financial
Creditor who initiated CIRP namely, M/s.
Udhyaman Investments Pvt. Ltd. Are all related
parties and (xii) that Mr. Poobalan had not only
acted on behalf of the Corporate Debtor before the
statutory authorities, but also happened to be the
authorized signatory of the Financial Creditor who
initiated the CIRP, eventually for the benefit of the
Resolution Applicant which is a related party of the
Financial Creditor.
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Section 65 of the said Act deals with fraudulent and
malicious initiation of proceedings. This provision was also referred
in the judgment. The said proceedings under IBC, 2016 was found
maintainable and in that factual matrix, it was held that NCLT and
NCLAT have jurisdiction to enquire into questions of fraud. In the
present case the plaintiffs are challenging the resolution dated
16.01.2020 on the ground of fraud committed by the defendants.
Therefore, the above case law is not applicable to the facts of this
case.
6. Ld. Advocate for the plaintiffs has argued that under
Section 9 of the Code of Civil Procedure, 1908, Civil Courts have
jurisdiction to try all suits of civil nature unless barred under the
statute either expressively or by necessary implication. He has
further argued that the Court would nearly lien in favour of a
construction, which would uphold the retention of jurisdiction of
Civil Court and burden of proof shall be on the party who asserts
that the Civil Court’s jurisdiction is ousted. He has relied upon
judgment of Hon’ble Calcutta High Court in Sharmila Shetty Vs.
Somnath Chatterjee and Anr. [Judgment dated 08.05.2015 in F.M.A.
No.760 of 2015 with C.A.N. No. 11602 of 2014]. In that case it is
held “The allegation is against Respondent No.1 of committing a
fraud and exercising undue influence and not the Company.
Therefore, this is certainly a civil dispute which is eminently triable
in the City Civil Court, Calcutta”. In the case of Jai Mahal Hotels
Pvt. Ltd. Vs. Rajkumar Devraj & Ors. [Judgment dated 23.09.2015 in
Civil Appeal No.7915 of 2015, 7919 of 2015, 7916 of 2015, 7917 of
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2015 and 7918 of 2015]. It is observed that the jurisdiction of
Company Law Board being summary in nature and seriously
disputed question of title could be left to be decided by Civil Court.
The Hon’ble Jammu & Kashmir High Court- Srinagar Bench in
Bakshi Faiz Ahmad Vs. Bakshi Farooq Ahmad and Another, discussed
Section 430 of the Companies Act, 2013 in paragraph nos. 34 and
35 therein :
34 Section 430 of Act of 2013 says that 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.
35 Qua applicability of provisions of Companies Act,
2013, it is well settled law that a serious question
of fraud and collusion cannot be decided by the
Tribunal in a summary proceeding. Given the relief
solicited for by respondent no.1 in the Suit for
Declaration, partition and Injunction, the Tribunal
has no power to decide the title of the shares in
summary proceedings. Section 58 of the Companies
Act, provides that rectification of register of
members has to be decided by Tribunal and as per
Section 430, the Civil court has no jurisdiction. At
the same time, it is also a trite law that Tribunal
has a power only to decide the issue of rectification
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of register of members and has no power to decide
the issue of title. It is apt to mention her that as
per Section 111A of Companies Act, 1956, the
Company Law Board was empowered to decide the
issue of title also. The word ‘title’ has not been
included in Section 58 of the Companies Act, 2013.
Even while considering Section 111A, it was held
by the Supreme Court that a seriously disputed
question of tile cannot be decided by the Company
Court or Company Law Board. This conclusion was
arrived at by the Supreme Court by taking into
consideration jurisdiction of the Company Law
Board being summary in nature. The procedure in
National Company Law Tribunal constituted under
the Companies Act, 2013, is also summary in
nature.
7. Ld. Advocate for defendants has argued that all
judgments relied upon by the plaintiffs are pre 2013, the NCLT has
been given vast powers under the Companies Act, 2013 and
therefore, the citations relied upon by the plaintiffs could not be
applied to this case. However, he could not point out from the
relevant provisions how the scope of NCLT was widened after
introduction of new Companies Act, 2013.
8. From the plaint allegations, it is clear that the plaintiffs
are seeking declaration to declare the resolution dated 16.01.2020 as
null and void on the grounds of fraud. Therefore, the Civil Court
has jurisdiction to entertain the suit. For the reasons given above,
the instant Notice of Motion for rejection of plaint is liable to be
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dismissed. Hence, following Order :
ORDER
1. Draft Notice of Motion is dismissed.
2. The defendants shall register the Notice of Motion for
statistical purpose.
3. Costs in cause.
(C. V. Marathe)
Judge,
Date : 23.10.2020. City Civil Court, Gr. Mumbai.
Dictated on : 23.10.2020
Transcribed on : 26.10.2020
Signed by HHJ on : 26.10.2020
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CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL SIGNED
JUDGMENT/ORDER.”
UPLOAD DATE AND TIME : 26.10.2020 at 12.30 p.m.
NAME OF STENOGRAPHER : Mrs. G. P. Acharekar
Name of the Judge (With
Court Room no.)
HHJ Shri. C. V. Marathe
C.R. no.04
Date of Pronouncement of
JUDGMENT/ORDER
23/10/2020
JUDGMENT/ORDER signed by
P.O. on
26/10/2020
JUDGMENT/ORDER uploaded
on
26/10/2020
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