Issues of elections to BOD of a company would be amenable to jurisdiction of the NCLT: Delhi HC

THE DELHI AND DISTRICT CRICKET ASSOCIATION V. SUDHIR KUMAR AGGARWAL AND ORS

FAO 92/2020 Review Petition No. 102/2020, CM Nos. 7342/2020, 7344/2020, 8624/2020, 8797/2020, 10450/2020, 10564/2020, 10565/2020, 11299/2020, 11300/2020, 11356/2020, 11357/2020, 11803/2020, 11804/ 2020, 20277/2020, 20278/2020, 22676/2020 & 22677/2020

Decided on: 21.9.2020

CORAM: Hon’ble MR. Justice Najmi Waziri

This appeal is to declare the notice dated 13.12.2019, for the Annual General Meeting (AGM) held on 29.12.2019, should be declared illegal, and consequently the AGM itself, where amendments were made to the Articles of Association and a new Ombudsman was appointed.

The issue before the court was

Whether elections to the Board of Directors (APEX Council) of a company; allegations of oppression and mismanagement; wrongful appointment of an Ombudsman in violation of Articles of Association, could be adjudicated by a civil court or whether jurisdiction vests exclusively with the National Company Law Tribunal (NCLT)?

The main arguments of the appellant were reliefs sought in the suit have been analyzed by the appellant as being maintainable only before the NCLT, in exercise of the relevant sections of the Companies Act, 2013.The relevant sections mentioned were241(1)(a), 242(4), 245(1)(b)(c), 242(2)(a), 245 (1).

The learned councils of the appellant contended that in a similar matter between the Directors of the appellant/DDCA, this Court had declined to entertain the relief sought therein and dismissed the two writ petitions, W.P.(C) Nos. 1878/2020 and 3221/2020. On 28.02.2020 W.P.(C) 1878/2020, was dismissed as withdrawn with liberty to the parties to put their grievances before the NCLT instead and the adjudications are pending in NCLT.

The learned councils further contended that Sections 430, 241, 242, and 244 of the Companies Act are the relevant provision which covers the lis. The appellant submits that the relief sought in the suit is barred from being adjudicated before a civil court, in view of the sweeping ambit of Section 430 of the Companies Act, 2013; it should have been dismissed as not maintainable. The appellant relied upon judgments of Shashi Prakash Khemka v. NEPC Micon&Ors. (2019 SCC Online SC 223) and SAS Hospitality Pvt. Ltd. Vs Surya Constructions Pvt. Ltd. (2018 SCC Online Del 11909). The appellant also relied upon the decision of the Madras High Court in Viji Joseph v. P. Chander (2019 SCC Online Mad 10424) which had similar issues like the present case.

The learned councils for the respondents argued thatthe approval of agenda items at the AGM in question was erroneous from the very outset, because the notice dated 13.12.2019 calling for the AGM clearly stated that voting would be by casting paper ballots. However, no paper ballots were cast. No resolution was passed at any stage of the AGM for approval of the agenda items through a voice vote. He further contends that the appointment of the ombudsman too was not by majority.

The Supreme Court has held in Shashi Prakash Khemka that the scope of Section 430 is vast, and jurisdiction of the civil court is completely barred when the power to adjudicate vests in the Tribunal. (Para no.20)

The Court stated that the NCLT has been specifically conferred powers to address grievances relating to the affairs of the company, which may be prejudicial or oppressive to any member of the company, or for issues of appointment of directors. The appointment of an Ombudsman would also form a part of the conduct and management of the affairs of the company. It also placed reliance on the judgment Viji Joseph which had identical issues.

Therefore, it stated that

The lis and grievances raised in the suit can be agitated only before the NCLT. A civil court would have no jurisdiction. As far as the specific allegation apropos the manner in which the Ombudsman was appointed are concerned, it too, is an issue which will come within the ambit of Tribunal i.e. appointment of people who would conduct the affairs of the company/the management. The video recording of the manner of appointments at the AGM in question could well be examined by the NCLT. (Para no 21)

The impugned order was set aside and appeal was allowed.

-Kamalini.

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FAO 92 of 2020

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