ANALYSING THE SCOPE OF SECTION 430 OF THE COMPANIES ACT, 2013 IN LIGHT OF ZEE V. INVESCO (2021) BY ADV.SAURABH MISHRA

This article was written by Mr. Saurabh Mishra, Advocate-On-Record, Supreme Court of India.

INTRODUCTION

The Bombay High Court in a recent judgment[1] issued an order in favour of Zee Entertainment on October 26, 2021, that prevented Invesco from acting on its September requisition to call an extraordinary general meeting (EGM). During the hearing, one of the arguments of Invesco was that, under Section 430 of the Companies Act 2013[2], civil courts do not have jurisdiction to hear matters that come under the jurisdiction of the National Company Law Tribunal (NCLT). The HC held that it had jurisdiction to act and thus, granted the injunction. Has the HC created parallel jurisdiction through this judgment? What will be the likely impact of the judgment? Are there case laws where the issue has been deliberated before? These are some questions that the article aims to discuss, along with the analysis of Section 430 in light of this judgment.

MATTER IN BRIEF

Zee Entertainment, the plaintiff, is a public limited and listed company and the defendant, Invesco, holds a 17.88 percent stake in the media company along with OFI Global China Fund LLC. The two investors sought to remove Punit Goenka, Zee Entertainment’s current board and Managing Director and Chief Executive Officer, and appoint six new independent directors via an EGM. Zee’s board had 21 days under the Act to call the requisitioned EGM. However, before the end of the 21-day period, Invesco filed a company petition against Zee before the NCLT under Section 98(1) (Power of Tribunal to convene meetings of members, etc.) and Section 100 (Calling of extraordinary general meeting) of the Companies Act, seeking an order from the NCLT to call and hold an EGM of Zee. Even though the case was already pending before the NCLT, Zee’s independent directors decided to file the case before the Bombay High Court to determine the validity of the Requisition Notice and, thus, the issue of jurisdiction arose.

SECTION 430 OF THE COMPANIES ACT, 2013

According to Section 430, a civil court does not have the jurisdiction to undertake the following functions, where the empowerment or power is given by or under the Act or any other law for the time being in force:

  • Entertain any suit or proceeding which the Tribunal or the Appellate Tribunal are empowered to determine.
  • Grant injunction in respect of any action taken or to be taken in pursuance of any power that lies with the Tribunal or the Appellate Tribunal.
ARGUMENTS OF THE PARTIES ON ISSUE OF JURISDICTION

Invesco argued that the High Court has no jurisdiction, as Section 430 prohibits any civil court from hearing a suit or proceeding in relation to any matter that the NCLT or the NCLAT have the authority to decide. Further, it was argued that the Court cannot issue an injunction against the NCLT, where the matter is already pending through Invesco’s petition under Section 98.

On the other hand, Zee claimed that the NCLT lacks the power or authority to rule on such matters. Zee went on to say that it cannot be that no court or tribunal can settle the issue, even if the end result will be, at the very least, ineffectiveness and, very possibly, illegality, which may destroy the entire enterprise.

ANALYSIS BY THE BOMBAY HC

The Bombay High Court observed that the NCLT Rules[3] do not include Sections 100, 149, 150, or 168 in the list of provisions over which the NCLT/NCLAT has jurisdiction[4]. It was also observed that the injunction sought by Zee in this matter is against Invesco rather than a court[5]. As a result, the frame in any anti-suit injunction procedure is specifically against the party bringing an anti-suit injunction proceeding and not the forum itself (unless the other forum is hierarchically subordinate).

ANALYSIS OF SECTION 430 IN LIGHT OF THE JUDGMENT

The NCLT Rules 2016 are in the form of delegated legislation, and as such, they cannot be used to define or limit the reach of a substantive provision of the parent provision (Section 430)[6]. It is well established that delegated legislation must comply with the parent statute’s substantive provisions and not the other way around, and that delegated legislation cannot be used to limit the scope of a provision in the parent Act[7].

Also, the NCLT Rules simply stipulate the fees for making an application before the NCLT. The rules do not and cannot give the NCLT “jurisdiction” over proceedings under the Act[8]. S.No. 30 of the NCLT Rules, 2016 provides for “Application under any other provisions specifically not mentioned herein above,” prescribing fees for any provisions of the Act not otherwise specifically covered therein.

Further, Section 9 of the Code of Civil Procedure, 1908[9] establishes the jurisdiction of Civil Courts, under which the terms “expressly or impliedly barred” have been discussed by courts in several cases, and it is now a well-established principle that jurisdiction can be barred either by an express provision in a statute or by the legislative intent that is clearly implied from the statute[10]. The Companies Act contains no specific provisions dealing with the NCLT’s jurisdiction and authority. However, the NCLT Rules cannot be used to curtail the clear intent of Section 430, which was to create the exclusive jurisdiction for the NCLT/NCLAT on all company law matters[11].

CASE LAWS WHERE THE ISSUE HAS BEEN DELIBERATED BEFORE

In Shashi Prakash Khemka v. NEPC[12], the Supreme Court observed that Section 430 is ‘widely worded’, and Section 430 completely bars the jurisdiction of civil courts in matters over which power has been conferred upon the NCLT. Through this judgment, the SC could have clarified the issue of jurisdiction but the judgment did not discuss many relevant questions relating to the jurisdictional aspect in the issue of appointment or removal of directors[13].

In another case[14], the Delhi High Court observed that Companies Act is a complete code hence statutory mechanism under it cannot be bypassed. Further, the same observations relating to Section 430 as the previous judgment were made. Ultimately, it was held that the HC does not have territorial jurisdiction to entertain the Writ Petition as the company petition is filed before the NCLT at Allahabad.

In SAS Hospitality Pvt Ltd v. Surya Construction Ltd[15], it was observed by the Delhi HC that NCLT has been granted greater powers than a civil court, which has far-reaching consequences. Thus, NCLT has exclusive jurisdiction for the adjudication of all the company matters.

Chiranjeevi Ratham v. Ramesh & Ors[16] was a case very similar to the present case, wherein the plaintiff filed a petition before the Madras High Court to declare the appointment of some directors in the Private Limited Company as illegal. The plaintiff also sought an injunction restraining them to act as the directors of the company to restrain the company from conducting an EGM. The Madras HC held that jurisdiction of the civil court is barred by Section 430 of the Act and the NCLT alone is entitled to adjudicate upon matters of oppression and mismanagement.

LIKELY IMPACT OF THE JUDGEMENT

The biggest impact that this judgment could have on the future judgments is that there could be a multiplicity of proceedings, because of the cases pending before NCLT being heard by High Courts. This could be the case, especially where Section 100 and 98 are concerned. There was the introduction of the NCLT under Companies Act, 2013 with the intention of relieving the courts of the unnecessary burden and so that all the matters pending before the Company Law Board could be transferred to the NCLT[17]. The whole rationale behind the enactment, especially of Section 430, in this regard would be destroyed if this situation arises. Issues pertaining to superiority or overlapping, or contradicting judgments between the NCLT and High Courts might also arise.

While it could be argued that the Bombay HC’s interpretation of Section 430 was limited to the specific context of the Zee-Invesco dispute, litigants citing the judgement may insist on the civil courts having “residuary jurisdiction” to adjudicate any dispute arising out of or in connection with those provisions of the Act that are not explicitly mentioned in the NCLT Rules’ fees schedule[18].

CONCLUSION

This issue of jurisdiction is not new and many cases are still filed before the High Court and NCLT simultaneously. While the article discussed those judgments which pointed to the exclusive jurisdiction of NCLT, there have been cases where it has been held otherwise.  Zee v. Invesco is just an addition to that line of judgments. Of course, the subjectivity of each case changes the verdict, but there has to be some objectivity so that the issue could be resolved. The author’s view is that the issue should be settled as soon as possible and NCLT should be declared the sole tribunal to adjudicate matters of company law so that there is no confusion and cases could be heard smoothly, without the issue of jurisdiction being raised or questioned before any court of law.

REFERENCES

[1] Zee Entertainment Enterprises Limited v. Invesco Developing Markets Fund [2021] 229 CompCas 540 (Bom).

[2] Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).

[3] The National Company Law Tribunal Rules, 2016.

[4] Zee v. Invesco Judgment, Para 75.

[5] Zee v. Invesco Judgment, Para 76.

[6] Bharat Vasani, Gathi Prakash & Varun Kannan, Zee v Invesco – Has Bombay High Court created parallel jurisdiction in company law matters?, CYRIL AMARCHAND BLOGS (Feb. 3, 2022), https://corporate.cyrilamarchandblogs.com/2022/02/zee-v-invesco-has-bombay-high-court-created-parallel-jurisdiction-in-company-law-matters/.

[7] Re: The Delhi Laws Act, 1912, AIR 1951 SC 332; Rajnarain Singh v. Chairman, Patna Administration Committee, AIR 1954 SC 569; Ispat Industries Ltd. v. Commissioner of Customs, (2006) 12 SCC 583; ITW Signode India Ltd. v. Collector of Central Excise (2004) 3 SCC 48.

[8] Supra note 6.

[9] Code of Civil Procedure, 1908, No. 5, Acts of Parlaiment, 1908.

[10] Priyanshu Upadhyay, Jurisdiction of civil court in company law matters, iPLEADERS (May 28, 2015), https://blog.ipleaders.in/jurisdiction-of-civil-court-in-company-law-matters/.

[11] Ibid.

[12] Shashi Prakash Khemka v. NEPC Micon, (2019) 18 SCC 569.

[13] Prithviraj Senthil Nathan King, Stubb & Kasiva, India: Civil Court Vs NCLT In Adjudicating The Company Law Matters: The Debate Continues, MONDAQ (Aug. 22, 2019), https://www.mondaq.com/india/shareholders/839106/civil-court-vs-nclt-in-adjudicating-the-company-law-matters-the-debate-continues.

[14] Shriraj Investment And Finance Limited & Ors. v. Union Of India Through Secretary & Another W.P. (CRL) 1823/2020 & Casper Consumer Electronics Pvt. Ltd. v. Union of India & Anr. W.P.(CRL) 1414/2021.

[15] SAS Hospitality Pvt. Ltd. v. Surya Constructions Pvt. Ltd., 2018 SCC OnLine Del 11909.

[16] C.R.P(PD)(MD)No. 870 of 2017.

[17] Supra note 10.

[18] Supra note 8.

Leave a Reply

Your email address will not be published.

error: Content is protected !!