Khetan Industries Pvt. Ltd. and Others Vs. Manju Ravindraprasad Khetan - Court Judgment

Excerpt:
[a] indian trusts act, 1882 - section 73 - principal civil court for bombay for the purpose of proceedings for removal of trustee - in high court of judicature at bombay and not the city civil court.;the city civil court at bombay is not the principal civil court of original jurisdiction for bombay and, as such, it has no jurisdiction to decide suits seeking reliefs by way of removal of trustees.;[b] companies act, 1956 - section 284 - civil procedure code, 1908 - section 9 - removal of director of limited company - is matter related to internal management of company - civil court has no jurisdiction.;it has also no jurisdiction to entertain a suit for removal of directors of a limited company as it relates to the internal management of the company which is governed by the provisions of.....order1. two questions of law arise for consideration in this revision application viz. (1) which is the principal civil court for bombay for the purpose of proceedings for removal of the trustees under chapter 7 of the indian trusts act, 1882 and whether a civil suit lies for removal of directors of a private limited company incorporated under the companies act, 1956.2. a suit was filed by the respondents against the petitioners (original defendants) in the city civil court, as bombay claiming following reliefs :'(a) this hon'ble court will be pleased to remove the defendant nos. 3 to 5 from the trusteeship of the defendant no. 2 and be pleased to appoint some other fit and proper person as trustee of the 2nd defendant-trust. (b) this hon'ble court will be pleased to remove the defendant.....

Judgment:
ORDER

1. Two questions of law arise for consideration in this revision application viz. (1) which is the principal civil Court for Bombay for the purpose of proceedings for removal of the trustees under Chapter 7 of the Indian Trusts Act, 1882 and whether a civil suit lies for removal of directors of a private limited company incorporated under the Companies Act, 1956.

2. A suit was filed by the respondents against the petitioners (original defendants) in the City Civil Court, as Bombay claiming following reliefs :

'(a) This Hon'ble Court will be pleased to remove the defendant Nos. 3 to 5 from the trusteeship of the Defendant No. 2 and be pleased to appoint some other fit and proper person as trustee of the 2nd defendant-trust.

(b) This Hon'ble Court will be pleased to remove the Defendant Nos. 3, 6 and 7 fromthe post of Directors and be further pleased to appoint some other fit and proper person as Directors of the Defendant No. 1-company.

(c) The Defendants Nos. 3 to 5 be restrained by a permanent as also interim and ad interim order and injunction of this Hon'ble Court from acting as trustees of Defendant No. 2 -- trust as also from dealing with or disposing of the assets of the defendant No. 2 save and except with permission of the Hon'ble Court.

(d) the defendants Nos. 3, 6 and 7 be restrained by a permanent as also interim and ad interim order and injunction of this. Hon'ble Court from acting as Directors of defendant No. 1 -- company as also from dealing with or disposing of the assets of the Defendant. No. 1 save and except with the permission of the Hon'ble Court.

(e) the Defendants be directed to disclose and account for all the dealings done by them in respect of the said sum of Rs. 66 lakhs and accrued interest thereon or any part thereof, being the consideration received from sale of the said Dye House of defendant No. 1.'

3. Defendant No. 1 in the original suit is Khetan Industries Private Ltd., a company incorporated under the Companies Act, 1956. Defendant No. 2 is 'Putra Vadhu Family Trust', a private trust registered under the Indian Trusts Act. Defendants 3 to 5 are the trustees of the said trust. Defendants Nos. 6, 7 and also defendant No. 3 are the directors of defendant No. 1 company. In para 22 of the paint it is specifically stated that the suit is for declaration and injunction. Prayers (a) to (d) are deemed to be valued at Rs. 300/- each and court-fees paid accordingly. It was further stated that other prayers were of consequential nature and no separate court-fees were payable. It is evident from the above statement in para 22 of the plaint that prayer (e) is only consequential to prayers (a) to (d) set out above. The respondents herein (original plaintiffs) also took out a Notice of Motion for grant of ad interim relief. The defendants (present petitioners) contested the Notice of Motion on the ground, inter alia, of lack of jurisdiction of the Civil Court to entertain and try the said suit. The trial Court, therefore,framed the following preliminary issue :

'Whether this court has jurisdiction to entertain and try this suit?'

It was contended by the defendants before the trial Court that in view of the provisions of Ss. 73 and 74 of the Indian Trusts Act the relief' claimed in the suit for removal of defendants 3 to 5 from the trusteeship of the trust and for restraining them from functioning as trustees is not maintainable. According to the defendants, the proper forum for such a relief is the High Court which is the principal Civil Court for Bombay. It was also contended that in view of the provisions of the Companies Act, 1956, which deals with the entire gamut of appointment, functioning and removal of directors and more particularly the provisions c of S. 10 of that Act, no suit is maintainable in a civil court for removal of the duly elected directors of a company incorporated under that Act. Anyone seeking removal of the directors has to avail of the specific remedy provided under the Companies Act for that purpose. The trial court decided both the issues against the defendants and held that it had jurisdiction to try the suit. The above order has been challenged by the defendants in this revision application.

4. I have heard the counsel for the parties. Learned counsel for the petitioners Mr. Suvarna submits that in view of the provisions of S. 73 of the Trusts Act, the power to remove trustees and appointment of new trustees is vested exclusively in the principal civil court of original jurisdiction. According to the learned counsel, such court for Bombay is the Bombay High Court. The City Civil Court, according to the petitioners, is not the principal civil court of original jurisdiction for Bombay. It is a court of limited pecuniary jurisdiction. The principal civil Court is the High Court only. In support of this contention reliance is placed on a decision of this court in Chatrabhuj Mavji Merchant v. Sumati Morarjee, 1992 Mah LJ 1075. So far as the second contention is concerned, the submission of the counsel is that the appointment and removal of the directors is specifically governed by the provisions of the Companies Act and that being so, the specificremedy provided under that Act has to be availed of by a person seeking relief on that score and no suit can lie to the civil court in that regard. In support of this contention reliance is placed on the decision of the Supreme Court in Dhulabhai v. State of M. P., : [1968]3SCR662 .

5. Learned counsel for the respondents (original plaintiffs), on the other hand, submits that the Bombay High Court is not the principal civil court of original jurisdiction for Bombay. According to the counsel, after the enactment of the Bombay City Civil Court Act of 1948, the principal civil Court for Bombay is the City Civil Court only and the fact that the City Civil Court's pecuniary jurisdiction is limited does not in anyway affect its position as a principal civil Court of original jurisdiction for Bombay. Reliance is placed on a decision of this Court in P. R. Geglani v. M/s. Beharilal Beniprasad, : AIR1978Bom255 in support of this contention. With regard to the jurisdiction of the civil court to deal with the suit so far as it pertains to removal of the directors of the limited company, the contention of the counsel is that the civil court's jurisdiction being not expressly barred in these matters by the Companies Act, civil courts have the jurisdiction to try such disputed despite the specific procedure being laid down in the Companies Act for that purpose. Reliance is placed in support of this contention on a number of decisions of various High Courts.

6. I have carefully considered the rival submissions. I have also perused the judgments referred to by counsel for the parties which are taken on record in the form of a compilation. It is, however, not necessary for determination of controversy before me to discuss all those decisions as, in my opinion, the controversy stands concluded by the decision of this Court in Chatrabhuj Mavji Merchant v. Sumati Morarjee 1992 Mah LJ 1075 and the decision of the Supreme Court in Dhulabhai v. State of M. P., : [1968]3SCR662 . In Chatrabhuj Mavji Merchant's case (supra), a suit was filed in the City Civil Court, Bombay, for a declaration and injunction alleging breach of trust by trustees of a trust vis-a-vis the trust property. Interim reliefs were claimed by way of the appointment of a receiver to take over the trust properly and an injunction to restrain defendants therein from using or dealing with the property through a notice of motion. The same having been dismissed, an appeal was filed in the High Court. The issue for consideration before the High Court was whether the City Civil Court had jurisdiction to try the suit. This Court held that breach of trust suits under the Indian Trusts Act have to be instituted in the principal Court irrespective of whether it be or not the District Court. So far as Bombay is concerned, the ordinary civil jurisdiction is vested in the High Court. The territory covered by the High Court's ordinary original civil jurisdiction includes villages of the Bombay Suburban District and Thane District. The Bombay City Civil Court Act, 1948, in terms, speaks of the City Court being 'an additional Civil Court for Greater Bombay'. It is not the principal Court as referred to in the Indian Trusts Act. Reference to the principal Court in the Trusts Act clearly imply that breach of trust suits have to be instituted in and tried by the principal Court. Suits of the nature of breach of private trusts for declaration and injunction are not maintainable in the City Court under the Bombay City Civil Court Act. The decision of this court in P. R. Geglani v. M/s. Beharilal Beniprasad, : AIR1978Bom255 was also referred to in the above decision and explained. I have carefully perused the above decision. In my opinion, the above controversy is no more res integra in view of the above decision. Following the same, I hold that the principal Civil Court of original jurisdiction for Greater Bombay is the High Court of Judicature at Bombay and not the City Civil Court. The Civil Court of limited pecuniary jurisdiction cannot be held to be principal civil court. This position is not affected by the enactment of Bombay City Civil Court Act, 1948 and creation of the Bombay City Civil Court.

7. So far as the jurisdiction of the Civil Court to entertain a suit for removal of the directors of a limited company is concerned, it may be observed that Part VI of the Companies Act contains detailed provisions for the management and administration of companies. Chapter II thereof deals with constitution of the Board of Directors, disqualification of directors, vacation of office by directors and matters connected therewith. Section 283 deals with the vacation of office by directors. Section 284 deals with the removal of directors. The procedure for removal of directors is laid down in the said section. From a careful perusal of the scheme of the Companies Act, particularly Chapter II of Part VI thereof, it is clear that the appointment of directors, their working, their removal etc. are all provided for by the Companies Act itself. Under S. 284, a director of a company may be removed by ordinary resolution. The following procedure is laid down in S. 284 for the purpose :--

Section 284 'Removal of directors.

(1).....

(2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.

(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.

(4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so,--

(a)in any notice of the resolution given to members of the company, state the fact of the representations having been made; and

(b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether beforeor after receipt of the representations by the company);

and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company's default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting :

Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Company Law Board is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Company Law Board may order the company's costs on the application to be paid in whole or in pan by the director notwithstanding that he is not a party to it.

(5) A vacancy created by the removal of a director under this section may, he if he had been appointed by the company in general meeting or by the Board in pursuance of S. 262, be filled by the appointment of another director in his stead by the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).

A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed as aforesaid.

(6) If the vacancy is not filled under subsection (5), it may be filled as a casual vacancy in accordance with the provisions, so far as they may be applicable, of S. 262, and all the provisions of that section shall apply accordingly :

Provided that the director who was removed from office shall not be reappointed as a director by the Board of directors.

(7) Nothing in this section shall be taken -

(a) as depriving a person removed thereunder of any compensation or damages payable to him in respect of the termination ofhis appointment as director or of any appointment terminating with that as director; or

(b) as derogating from any power to remove a direct or which may exist apart from this section.'

The right of the shareholders to remove a director is thus created by the Companies Act. It also lays down the procedure for exercise of such right. From the scheme of the Act, it is clear that detailed procedure is provided for in the Act itself. Besides, these are the matters of internal management of the companies which should be dealt with in accordance with the procedure laid down in the Companies Act. Civil Courts cannot interfere with such matters of internal management of the companies.

8. The rule in Foss v. Harbottle (1843) 2 Hare 461 applies in such a case. It also does not fall in any of the known exceptions to the above rule viz., an act which is ultra vires the company or illegal, an act which constitutes a fraud against the company and a resolution which requires a qualified majority but has been passed by a simple majority. (See Edwards v. Halliwell (1950) 2 All ER 1064

Moreover, the right to appoint and/or remove the directors of a Company being a creature of the Companies Act which itself provides a machinery for the enforcement of the said right, the civil court's jurisdiction is impliedly barred.

9. In such a situation, it has to be held that the civil court should not interfere. In other words such disputes are outside the jurisdiction of the civil court. So far as the relief sought or in prayer (e) is concerned, it is not necessary to go into the same in view of the submission of the petitioners themselves that it is only consequential to the other two reliefs. That being so, as no suit is maintainable for seeking reliefs specified in prayers (a) to (d), no civil suit is maintainable for relief sought for in prayer (e) also.

10. To sum up the discussion, the City Civil Court at Bombay is not the principalCivil Court of original jurisdiction for Bombay and, as such, it has no jurisdiction to decide suits seeking reliefs by way of removal of trustees. It has also no jurisdiction to entertain a suit for removal of directors of a limited company as it relates to the internal management of the company which is governed by the provisions of the Companies Act, specifically made in that behalf.

11. In the result, this revision application is allowed. The impugned order is set aside. The preliminary issues framed by the trial court in regard to its jurisdiction is answered in the negative i.e. the City Civil Court has no jurisdiction to entertain and try the suit in question. This revision application is allowed but with no order as to costs.

12. On the prayer of the learned counsel for the respondent the operation of this order is stayed for a period of eight weeks from today.

13. Revision allowed.