Gireesh Kumar Sanghi vs Sanghi Industries Ltd

Gireesh Kumar Sanghi ...Appellant V Sanghi Industries Ltd. & 19 Ors. .... Respondents

WITH

Company Appeal (AT) (CH) No. 96/2023 (IA Nos. 1201, 1202 & 1203 / 2023)

In the matter of:

Gireesh Sanghi (HUF) ...Appellant V Sanghi Industries Ltd. & 17 Ors. .... Respondents

Present : For Appellant : Mr. Yogesh Jagia & Harshit Ratra, Advocate

For Respondents : Mr. R. Venkatavaradan, Advocate For Mr. Sriram Venkatavaradan, Advocate for R2 / Caveator

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This order shall dispose of two appeals bearing CA (AT) (CH) No. 95

of 2023 filed by Mr. Gireesh Sanghi against the order dated 07.09.2023,

passed by the National Company Law Tribunal, Hyderabad Bench - I (in

short 'the Tribunal'), by which CP/10/59/HDB/2018 filed under Section

59 of the Companies Act, 2013 (in short 'the Act') r/w Rule 11 of the NCLT

Rules, 2016 (in short 'Rules') has been dismissed as not maintainable 2

before the Tribunal (in short 'first appeal') and CA (AT) (CH) No. 96 of

2023 filed by Mr. Gireesh Sanghi (HUF) against the order dated

07.09.2023 passed by the National Company Law Tribunal, Hyderabad

Bench - 1, by which CP/33/59/HDB/2018 filed under Section 59 of the

Act r/w Rule 11 of the Rules has been dismissed as not maintainable

before the Tribunal (in short 'second appeal').

2. In the first appeal, the application under Section 59 of the Act was

filed seeking the following relief:-

"a. Declare that 1,33,62,800 shares transferred on 18.12.2014 is in willful violation of Orders of Hon'ble Company Law Board, 23.10.2008 and 28.10.2009. b. Direct rectification of Register of Members of Respondent No. 1 Company to the extent of 1,33,62,800 shares transferred to Respondent No. 2 on 18.12.2014, previously held by R7 to R l7 and as detailed below and consequent rectification of shareholding of R2 in R1 Company:

SI. Name of the Respondent Impugned No. Transfer of Shares 1. SZF Pvt Ltd (R7) 24,00,000 2. Balaji Zippers Pvt Ltd (R8) 6,00,000 3. Sanghi Poly Zips Pvt Ltd (R9) 6,00,000 4. Sanghi Synthetics Pvt Ltd Rl0) 6,00,000 5. Alpha Zippers Pvt Ltd (Rl1) 6,00,000 6. Fancy Zippers Pvt Ltd (Rl2) 6,00,000 7. SKK Zippers Pvt Ltd (R13) 6,00,000 8. Maruthi Fasteners Pvt Ltd Rl4) 6,00,000 9. Sanghi Threads Pvt Ltd (Rl5) 6,00,000 10. Sanghi Filaments Pvt Ltd (Rl6) 7,50,000 11. Sanghi Polyesters Ltd (Rl7) 54,12,800 Total 1,33,62,800

c. Direct the Respondent No.18 to 20 to effect the changes to the beneficiary accounts immediately.

d. Direct the Registrar of companies, to initiate appropriate proceedings against directors of R7 to Rl7 at the contemporaneous time (on 18.12.2014) for fraudulently transferring the shares of held by Respondent No. 7 to 17 without receiving consideration.

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 3

e. Further any other consequential, incidental or other order(s) as this Hon'ble Tribunal may deem fit in the circumstances of the case"

3. Whereas the application under Section 59 of the Act was filed in

the second appeal for the following reliefs: -

"a. An order declaring that 1,33,62,800 shares of R7 to Rl7 transferred on 18.12.2014 is illegal and null and void and also in violation of Orders of Hon'ble Company Law Board, 23.10.2008 and 28.10.2009.

b. Directions for rectification of Register of Members of Respondent No. 1 Company to the extent of 1,33,62,800 shares transferred to Respondent No. 2 on 18.12.2014, previously held by R7 to Rl7 and as detailed below and consequent rectification of shareholding of R2 in RI Company by restoring name of R7 to R17 in members register of R1 Company:

SI. Name of the Respondent Impugned No. Transfer of Shares 1. SZF Pvt Ltd (R7) 24,00,000 2. Balaji Zippers Pvt Ltd (R8) 6,00,000 3. Sanghi Poly Zips Pvt Ltd (R9) 6,00,000 4. Sanghi Synthetics Pvt Ltd Rl0) 6,00,000 5. Alpha Zippers Pvt Ltd (Rl1) 6,00,000 6. Fancy Zippers Pvt Ltd (Rl2) 6,00,000 7. SKK Zippers Pvt Ltd (R13) 6,00,000 8. Maruthi Fasteners Pvt Ltd Rl4) 6,00,000 9. Sanghi Threads Pvt Ltd (Rl5) 6,00,000 10. Sanghi Filaments Pvt Ltd (Rl6) 7,50,000 11. Sanghi Polyesters Ltd (Rl7) 54,12,800 Total 1,33,62,800

c. Directions to Respondent No.18 to effect the changes to the beneficiary accounts immediately."

4. The Tribunal after referring to the averments made by the

Applicant and the reply by the Respondents framed a question as to

whether the rectificatory jurisdiction under Section 59 of the Act, which

is summary in nature can be exercised where there are contested facts

and disputed questions?

5. The Tribunal relied upon two decisions of the Hon'ble Supreme

Court, namely, Ammonia Supplies Corporation P. Ltd. Vs. Modern Plastic Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 4

Containers Pvt. Ltd. & Ors., (1998) 7 SCC 105 and IFB Agro Industries

Limited Vs. SICGIL India Limited & Ors., (2023) SCC On Line SC 8 and

observed that "therefore, in the light of the law as laid down in re,

Ammonia Supplies and IFB Agro, Supra, the present petition since filed

under section 59 Companies Act 2013, it is imperative for us to examine

whether or not the factual assertions as made tantamount to 'contested

facts and disputed questions' and if the same are found to be so, then

relegate the parties to a competent forum. So that these facts can be

investigated and adjudicated." Thereafter, the Tribunal made the

following observations in Paras 11 and 12 which are reproduced as

under:-

"11. Thus, both the pleadings as well as submissions since are focussed on pleas such as, illegal transfer of shares, disputed family settlement, non-payment of consideration in respect of the shares transferred, loss of crores of rupees to the shareholders, the petitioner locus standi of transfer of equity shares for discharge of loans, dismissal of the plea of violation of the order of status quo by the respondents etc, in our considered view the same are of the nature of seriously contested facts and disputed questions. So much so, in the light of the rulings, in re, Ammonia Supplies and IFB Agro, supra, the rectificatory jurisdiction of this Tribunal under Section 59 of the Companies Act, 2013 being summary, cannot be exercised in this case and the remedy if any for the parties herein is to take recourse to a competent civil court. As such the present petition is not maintainable, before this Tribunal.

12. Point answered accordingly."

6. Counsel for the Appellant has vehemently argued that there is no

dispute regarding family settlement rather the dispute is regarding illegal

transfer of share and non-payment of consideration in respect of the

shares transferred which has caused huge loss to the shareholders.

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 5

Secondly, it is submitted that the decisions in the case of Ammonia

Supplies and IFB Agro (Supra) are not applicable after coming into force

of the Act in which Section 430 of the Act has been provided specifically

excluding the jurisdiction of the Civil Court. It is submitted that the

Hon'ble Supreme Court in the case of Shashi Prakash Khemka Vs. NEPC

Micon & Ors. (2019) 18 SCC 569 has categorically held that the

jurisdiction of the Civil Court is completely barred in Section 430 of the

Act and held that where a dispute to arise today, the civil suit remedy

would be completely barred and the power would vest with the NCLT

under Section 59 of the Act. He has also referred to a decision in the case

of Adesh Kaur Vs. Eicher Motors Limited and Ors., (2018) 7 SCC 709 and

a decision of this Court in the case of MAIF Investment Vs. M/s Ind-

Barath & Ors., CA (AT) No. 334 of 2018. It is further submitted that

decision in the case of Ammonia Supplies (Supra) is not applicable

because at that time when the aforesaid judgment was rendered the

jurisdiction of the Civil Court was not barred by the legislature. Similarly,

it is submitted that in the case of IFB Agro (Supra), the Hon'ble Supreme

Court was not deciding the issue which has arisen in this case rather it

was determining the appropriate forum for adjudication and

determination of violation of the Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeover) Regulations, 1997 and

Securities and Exchange Board of India (Prohibition of Insider Trading)

Regulations, 1992 framed under the Securities and Exchange Board of

India Act, 1992 and has not dealt with Section 430 of the Act.

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 6

7. On the other hand, while defending, Counsel for the Respondent

has argued that in the case of Ammonia Supplies (Supra), the Hon'ble

Supreme Court has held, which has been extracted also by the Tribunal

that "it is a summary power to carry out corrections or rectifications in

the register of members and that the rectification must relate to and be

confined to the facts that are evident and need no serious enquiry".

Similarly, while referring to IFB Agro Industries Limited (Supra) he has

again referred to the extracted portion in the impugned order which read

as under:-

"The rectificatory powers of a Board/Company Court under Section 38 of the Companies Act, 1913, then under Section 155 of the 1956 Act, followed by Section JJJA introduced by the 1996 Amendment to the 1956 Act, and finally, Section 59 of the 2013 Act, demonstrate that its essential ingredients have remained the same. It is a summary power to carry out corrections or rectifications in the register of members. The rectification must relate to and be confined to the facts that are evident and need no serious enquiry."

8. We have heard Counsel for the parties and perused the record with

their able assistance.

9. The issue in this case has been framed by the Tribunal that as to

whether the rectificatory jurisdiction under Section 59 of the Act, which

is summary in nature can be exercised where there are contested facts

and disputed questions?

10. To answer this question, it would be relevant to refer to Section 59

and Section 430 of the Act, which are reproduced as under:-

"59. Rectification of register of members.--

(1) If the name of any person is, without sufficient cause, entered in the register of members of a company, or after

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 7

having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register.

(2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved. (3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.

(4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned. (5) If any default is made in complying with the order of the Tribunal under this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both."

"430. Civil court not to have jurisdiction.-- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 8

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."

11. Since, the Tribunal has relied upon the decision in the case of

Ammonia Supplies and IFB Agro (Supra) which has also been relied upon

by Counsel for the Respondent, therefore, it would be apt to deal with two

decisions to find out as to whether these decisions would apply? In the

case of Ammonia Supplies (Supra), Section 155 of the Act of 1956 was in

question which deal with the power of company court to rectify the

register of members maintained by a company. The word 'rectification'

has been defined as something what ought to have been done but by error

not done and what ought not to have been done was done requiring

correction. In this case, the question was framed as to whether in the

proceedings under Section 155 of the Act of 1956, the court has exclusive

jurisdiction in respect of all the matters raised herein or has only

summary jurisdiction? The Hon'ble Supreme Court held that the

company court under Section 155 has to adjudicate in the facts and

circumstance whether the dispute raised really pertains to rectification

or under the garb of rectification questions of fact involving contentious

issues are raised and if dispute found to be relating to the peripheral field

of rectification, then the company court under Section 155 will have

exclusive jurisdiction but if finding is otherwise then the civil court's

jurisdiction is not excluded. In the case of IFB Agro (Supra), the Hon'ble

Supreme Court was considering the question in regard to the scope of the

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 9

rectificatory jurisdiction of the NCLT under Section 59 of the Act and was

called upon to determine the appropriate forum for adjudication and

determination of violations of the Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeover) Regulations 1997 and

Securities and Exchange Board of India (prohibition of insider trading)

Regulations 1992 framed under the Securities and Exchange Board of

India Act, 1992. It was held that under Section 59 of the Act, in view of

the Ammonia Supplies (Supra) the jurisdiction is summary in nature and

not intended to be exercised where there are contested facts and disputed

questions and in regard to the second issue it was held that transactions

falling within the jurisdiction of Regulatory bodies created under a statute

must necessarily be subjected to their ex-ante scrutiny, enquiry and

adjudication. It was therefore rejected the contention that NCLT has

exercised a parallel jurisdiction under Section 59 with Securities and

Exchange Board of India for addressing violations of the Regulations and

framed under the SEBI Act. However, when the matter pertaining to

Ammonia Supplies (Supra) was decided on 04.09.1998, there was no

such provision like Section 430 which is now existing in the Act by which

the legislature has completely barred the jurisdiction of the Civil Court to

entertain any suit or proceedings in respect of any matter which the

Tribunal or Appellate Tribunal is empowered to determine by or under

this Act or any other law for the time being in force. In the case of IFB

Agro (Supra), the provisions of Section 430 were not brought to the notice

of the Hon'ble Court and were not adverted to whereas in the case of

Shashi Prakash Khemka (Supra) relied upon by the Appellant, the

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 10

Hon'ble Supreme Court has specifically held that after coming into force

of Section 430 of the Act, the jurisdiction in regard to the rectification

would squarely fall under Section 59 of the Act and jurisdiction of the

Civil Court is completely barred. In this regard, Paras 4 to 7 are

reproduced as under:-

"4. Learned counsel for the appellants has drawn our attention to the view expressed in Ammonia Supplies Corporation (P) Ltd. vs. Modern Plastic Containers Pvt. Ltd. and Others (1998) 7 SCC 105, to canvass the proposition that while examining the scope of Section 155 (the predecessor to Section 111), a 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 a civil suit. The submission of the learned counsel is that the subsequent legal developments to the impugned order have a direct effect on the present case as the Companies Act, 2013 has been amended which provides for the power of rectification of the Register under Section 59 of the said Act.

5. Learned counsel has also drawn our attention to Section 430 of the Act, which reads as under:-

"430. Civil court not to have jurisdiction.- 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."

The effect of the aforesaid provision is that in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred.

6. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and the power would be vested with the National Company Law Tribunal (NCLT) under Section 59 of the said Act. We are conscious of the fact that in the present case, the cause of action has arisen at a stage prior to this enactment. However, we are of the view that relegating the parties to civil suit now would not be the

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 11

appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded.

7. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before the NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today."

12. Similar view has been expressed in the case of Adesh Kaur (Supra)

and also in the case of MAIF Investment (Supra).

13. Therefore, in our considered opinion, once the legislature has

created a complete bar of the jurisdiction of the Civil Court by enacting

Section 430 in the Act as per which no civil court shall have the

jurisdiction to entertain any suit or proceedings in respect of any matter

which the Tribunal or Appellate Tribunal is empowered to determine by

or under this Act or any other law for the time being in force and no civil

court has the jurisdiction to grant injunction in respect of any action

taken or to be taken in pursuance of any power conferred by or under the

act or any other law for the time being in force by the Tribunal or

Appellate Tribunal, there is no shred of doubt that the jurisdiction to

decide the rectificatory jurisdiction under Section 59 of the Act shall be

available to be exercised even where there are contested facts and

disputed questions and regard may be had to the decision in the case of

Shashi Prakash Khemka (Supra) as decided by the Hon'ble Supreme

Court while referring to Section 430 of the Act.

14. With these observations, we allow both the appeals and set aside

the impugned orders. Since, the application filed under Section 59 of the

Act by the Appellant has simply been dismissed for want of jurisdiction,

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023 12

therefore, we remand the matter back to the Tribunal to decide it in

accordance with law and the parties are directed to appear before the

Tribunal on 18th December, 2023.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Shreesha Merla] Member (Technical)

01st December, 2023

Sheetal

Company Appeal (AT)(CH) Nos. 95 & 96 of 2023