The legal landscape surrounding corporate disputes in India underwent a significant transformation with the enactment of the Companies Act, 2013 (“Act“). Section 430 of the Act delineates the exclusive jurisdiction of the National Company Law Tribunal (“NCLT“) and the National Company Law Appellate Tribunal (“NCLAT“), prohibiting civil courts from adjudicating matters falling within the purview of these tribunals. The aforementioned provision, introduced in 2016, aimed to streamline dispute resolution mechanisms and enhance efficiency in corporate governance. However, a recent judgment by the Calcutta High Court in the case of Eastern Indian Motion Picture Association & Ors. v. Mr. Milan Bhowmik (“EIMPA Judgment“)1 has challenged this statutory framework, raising pertinent questions about the interplay between specialized tribunals and civil courts in resolving shareholder disputes.
Legal Landscape: Understanding the Statutory Framework
Section 430 of the Act states 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.”
The section clearly states that civil courts cannot handle cases that fall under the NCLT’s jurisdiction, as defined by the law (which has been in place since the inception of the aforesaid Tribunals). It means civil courts cannot deal with certain disputes, like shareholder complaints listed in Section 241 of the Act. This section enables any member who is of the view that the company is harming the public interest, treating them in a prejudicial/oppressive manner, or hurting the company’s interests, to complain to the NCLT. Such complaints can be made if there are big changes in the company’s management or control, like changes in the Board of Directors, management, ownership of shares, or membership, and if these changes are likely to be prejudicial company or its members. Also, the government apply to the NCLT for an order if it thinks the company’s actions are against the public interest. This process was instituted to make dispute resolution smoother and more streamlined. However, the EIMPA Judgment questions if these specialized tribunals are optimally suited to solve corporate disputes of this nature.
Case overview and Decision
In the EIMPA case, two members Mr. Milan Bhowmik and Md. Nurul Hussain of Eastern India Motion Picture Association (“Company“) without share capital brought a challenge before the Calcutta High Court regarding the election of the company’s executive committee for the term 2021-2023. They alleged that this election violated the company’s Articles of association (“AOA“) and election conduct rules of the company.
In response, the defendants filed an application under Order 7 Rule 11 of the Code of Civil Procedure, 1908, pointing out the statutory restriction in Section 430 of the Act. They argued that the subject matter of the suit fell within the scope of section 241(1)(a) of the Act, thus contending that the Calcutta High Court lacked jurisdiction to entertain the suit.
The members countered this by asserting that Section 244(b) of the Act stipulated that at least 1/5th of the company’s members could jointly approach the NCLT, under Section 241 of the Act, in case of a company not having a share capital. Since only two members raised the grievance in this case, they argued that the NCLT lacked jurisdiction to hear the matter, and it should be pursued in a civil court.
Interestingly, the single judge found merit in this argument despite the defendants highlighting that the NCLT had the authority to waive this minimum requirement under Section 244. The trial judge had reasoned that “since the plaintiffs were only two in number, they did not possess the requisite strength to apply and had rightly approached the civil court by this suit”. He rejected the defendants’ argument relating to a waiver under Section 244, citing that considering the application would be time-consuming and that a civil suit would be a more effective remedy.
The single judge ultimately rejected the Order 7 Rule 11 application, which was challenged by the defendants before the division bench.
After careful consideration, the division bench concurred with the single judge’s approach, finding his reasoning plausible. Moreover, the division bench elaborated on the single judge’s rationale, stating that “if the plaintiffs approached the tribunal for dispensing with the eligibility criteria, there was no guarantee that the tribunal would allow the application. In the event the tribunal rejected the application the plaintiffs would have to approach the civil court. The plaintiffs were justified in availing of a certain remedy rather than one which did not exist but could come into existence on fulfilment of an uncertain condition.“
Consequently, the division bench dismissed the appeal, affirming that the suit filed by the members was maintainable, and their decision to directly approach the civil court was appropriate.
Conclusion
The EIMPA Judgment represents a pivotal moment in India’s legal landscape, underscoring the complexities inherent in balancing statutory mandates with judicial discretion. The Calcutta High Court allowed the litigants to not be restricted to approaching the NCLT (with a matter that would ultimately hinge of the NCLT’s exercise of its discretion) and pursue their grievances in a civil court instead. This approach commences more nuanced discussions about the consistency and predictability of judicial outcomes in corporate law matters. As stakeholders navigate these legal uncertainties, it becomes imperative to contextualise statutory provisions with the evolving legal dynamics. The EIMPA Judgment serves as a poignant reminder of the need for clarity and coherence in India’s corporate governance framework, ensuring equitable access to justice and fostering confidence in the legal system.
12024 SCC OnLine Cal 1325.
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