In a recent case, the Telangana High Court held that the National Company Law Tribunal ( NCLT )/ National Company Law Appellate Tribunal ( NCLAT ) have no right to the determination of the title of the shares. It was observed that the right was within the domain of the Civil Court.
Section 430 of the Companies Act, 2013, restricts the jurisdiction of civil courts in matters that fall under the purview of the National Company Law Tribunal or the National Company Law Appellate Tribunal. It ensures that civil courts do not interfere with issues that these specialized tribunals are empowered to handle.
Cherukuri Ramakrishna, the Appellant is a major shareholder in M/s. Sunbeam Hospitality Private Limited, along with other shareholders, entered into an MOU, Share Purchase Agreement, and Takeover Agreement with Sandhya Hotels Private Limited and others, the Respondents to transfer their shares. The agreement stipulated that the Respondents would pay Rs.20,04,50,700/- to the Appellant. However, the Respondents only paid Rs.19,37,50,700/-, leaving Rs.67,00,000/- unpaid.
The Appellant claimed that the Respondents fraudulently transferred the Appellant’s shares to themselves without paying the remaining amount and removed the Appellant as Director before assuming control of the company. Consequently, the Appellant filed a complaint in the City Civil Court at Hyderabad for a mandatory injunction and re-transfer of 10,197 shares in M/s. Sandhya Hospitality Private Limited. The Trial Court’s order rejected the plaint. Feeling aggrieved, the Appellant approached the High Court. It argued that Sections 430, 58, and 59 of the Companies Act, 2013, do not apply to the case.
It was argued that the request for the re-transfer of shares from the Respondents to the Appellant fell under the jurisdiction of a Civil Court, not the NCLT or NCLAT. It referred to specific pleadings in the plaint to emphasize that the issues raised do not fall within the jurisdiction of the NCLT or NCLAT.
On the other hand, the Respondents argued that Sections 430, 58, and 59 of the Companies Act, 2013, strictly prohibit Civil Courts from handling disputes under the purview of the NCLT or NCLAT.
The bench comprising Justice Moushumi Bhattacharya and Justice Nagesh Bheemapaka has found that Section 430 aims to prevent Civil Courts from interfering in matters specifically designated to the NCLT or NCLAT. Sections 58 and 59 deal with the refusal of companies to register the transfer of securities and provide for rectification of the register of members. The High Court noted that these sections become relevant only after the title to the shares is decided, a matter that falls within the Civil Court’s domain.
The Court held that the determination of the title to the shares is within the exclusive jurisdiction of the Civil Court. This interpretation is supported by the proviso to Section 58(2), which states that any contract concerning the transfer of securities is enforceable as a contract.
The court was of the view that the issues raised in the plaint concerning individual rights and the title to shares must be decided by a Civil Court and held that the NCLT is not a suitable forum for these matters.
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