[Neharika Chhabra and Gourav Kathuria are fourth-year B.A. LL.B (Hons.) students at NALSAR University of Law]
On 22 March 2022, a division bench of the Bombay High Court in Invesco Developing Markets Fund v. Zee Entertainment Enterprises overturned the judgment of a single judge. It held that section 430 of the Companies Act (the ‘Act’) bars the High Court from adjudicating matters arising under the Act. It further observed that under section 100 of the Act, the High Court does not have the authority to decide upon the validity of a requisition notice to call for the extraordinary general meeting (‘EGM’).
In this post, the authors argue that this judgment has rectified the single judge’s erroneous interpretation of section 430 regarding the jurisdiction of the National Company Law Tribunal (‘NCLT’). However, the division bench could possibly have substantiated its judgement with additional arguments. This post also proffers novel reasons to demonstrate why the single judge’s interpretation of section 430 was untenable in law.
High Court Interpretation
This case concerns a dispute between Zee Entertainment Enterprises Private Limited and Invesco Developing Markets Fund. Invesco, an institutional shareholder, sent a requisition notice under section 100 calling for an EGM. Section 100 grants the right to convene an EGM to any shareholder who owns at least one-tenth of the paid-up share capital. However, Zee refused to convene the EGM, stating that the notice was invalid. Aggrieved by this, Invesco approached the NCLT. In response, Zee moved the High Court, contending that it is not obligated to call the EGM on requisition notice. Among other arguments, Invesco challenged the High Court’s jurisdiction, arguing that section 430 bars the jurisdiction of civil courts in matters related to company law. The single judge ruled that section 430 does not bar the jurisdiction of the High Court, as the National Company Law Tribunal Rules, 2016 (‘NCLT Rules’) do not explicitly mention section 100.
The division bench overturned this interpretation. It held that section 430 expressly ousts the jurisdiction of civil courts, including the High Court, in matters involving company law. It observed that the plain language of section 430 could not be defeated by the arguments based on the NCLT Rules and the schedule of fees mentioned therein.
While the division bench reached the right conclusion, we argue that it overlooked several important arguments. The Court had at its disposal the following additional arguments to substantiate its reasoning:
Legislative Intent and Present Legislative Framework
In company law disputes, time is of the utmost essence. The Bhabha Committee on company law reforms recognised the need for expeditious disposal of such cases and suggested a special high court bench for dealing with company law disputes. This was followed by Government vesting jurisdiction in multiple forums like the Company Law Board, the High Court and the Board of Industrial and Financial Reconstruction (‘BIFR’). However, the multiple forums led to more confusion and delay and, to resolve that issue, the Eradi Committee suggested the formation of a single national tribunal.
The Government accepted these recommendations, and the notion of the NCLT and National Company Law Appellate Tribunal (‘NCLAT’) was introduced through an amendment to the Companies Act, 1956. Later, these provisions were also incorporated in the Companies Act, 2013. Section 430 of this Act provides the jurisdiction to the NCLT, and expressly excludes the courts, in dealing with company law issues. This section reflects the legislative intention of having a single forum.
However, the single judge’s decision disregarded this legislative intention by conferring jurisdiction upon the High Court and denying the same to the NCLT. On appeal, the division bench revised this position and observed that the matter falls under the jurisdiction of the NCLT, and that the court cannot, therefore, interfere. This conclusion is reasonable in light of the legislative intent and the literal interpretation of section 430.
The courts have also interpreted section 430 in line with the legislative intention, recognising that the NCLT is the only and exclusive forum to deal with company law issues. For instance, in Madras Petrochem Ltd v. BIFR, the Supreme Court held that the Companies Act (Second Amendment) Act, 2002 provided for the NCLT as a ‘substitute’ for the Company Law Board, the High Court and the BIFR. In Union of India v. R Gandhi, where the 2002 amendment was challenged, the Supreme Court observed that when the Companies Act substituted the High Court by creating the NCLT, there was necessarily a ‘wholesale transfer’ of company law matters to the tribunal. The transfer of jurisdiction was an inevitable repercussion of the creation of NCLT. In Shashi Prakash Khemka v. NEPC, the Supreme Court further clarified the stance and held that section 430 is widely worded and absolutely bars the jurisdiction of civil courts in matters for which power has been conferred on the NCLT. In Kiran Shah, RP of KSL and Industries Ltd. v. Enforcement Directorate, Kolkata, the NCLAT held that, under section 430, the NCLT alone has jurisdiction concerning the matters related to the Companies Act.
A perusal of all these cases demonstrates that the courts should defer the jurisdiction to NCLT in company law issues. However, the single judge turned a blind eye to these authoritative precedents and conferred jurisdiction upon the High Court itself. As that judgment did not follow the binding precedents, it was per-incuriam.
The single judge’s argument that the NCLT Rules do not specifically mention section 100 is equally untenable. The NCLT Rules simply prescribe the fees for filing an application before the NCLT and do not perform the role of conferring jurisdiction. This implies that even though section 100 is not specifically mentioned in the NCLT Rules, it does not mean that the NCLT does not have jurisdiction over cases involving section 100. Using the NCLT Rules as a basis for conferring jurisdiction is a flawed argument.
In addition, while section 100 grants a shareholder (who owns at least one-tenth of the paid-up share capital) the right to convene an EGM, the shareholder’s right to call an EGM is also covered under section 98 of the Act, which is specified in the NCLT Rules. Hence, the mere absence of section 100 in the NCLT Rules does not imply that NCLT lacks jurisdiction in matters involving shareholders’ right to call the EGM.
Doctrine of Ultra Vires
The doctrine of ultra vires propounds that delegated legislation must be consistent with the parent statute, and that delegated legislation cannot be used to limit the scope of a parent Act. The Companies Act is parent legislation, and NCLT Rules are delegated legislation under it. Accordingly, the NCLT Rules cannot be used to circumvent the clear legislative intent of section 430, which states that the NCLT and NCLAT have exclusive jurisdiction over all company law matters, and it ensures that the NCLT and the civil courts do not have concurrent jurisdiction over company law matters.
Therefore, the single judge’s decision to circumvent the understanding of section 430 according to the NCLT Rules was wrong as it violated the doctrine of ultra vires.
Without the intervention of the division bench, the single judge’s ruling would have had undesirable implications. One possible repercussion would have been for parties to argue that civil courts had residual jurisdiction over provisions not expressly listed in NCLT Rules. This would have defeated the legislative intent and rationale of devising one specialised forum to resolve the issues in a timely manner. This would mean multiple forums having parallel jurisdiction in similar matters, leading to chaos and confusion.
The division bench corrected this erroneous interpretation but provided only a few grounds to support its conclusion. The division did not take advantage of the opportunity to make a compelling case for why courts should avoid interfering in company law matters.
– Neharika Chhabra & Gourav Kathuria