Civil court does not have power to entertain cases related to issue and transfer of shares

The National Company Law Appellate Tribunal (NCLAT) has ruled that civil courts cannot hear cases concerning the issue and transfer of shares. This is because Chapter IV of the Companies Act, 2013, specifically empowers the National Company Law Tribunal (NCLT) to handle such matters. Section 430 of the Act explicitly bars civil courts from entertaining any suit or proceeding related to issues that the NCLT or Appellate Tribunal is authorised to decide. Consequently, the NCLAT upheld the NCLT's order in this case, dismissing the appeal.

Positive edge Technology Pvt. Ltd. & Ors. (Appellants)
vs. Asmita Katdare & Ors. (Respondents)- NCLAT
Dated: 18/11/2020

HELD THAT

The Companies Act, 2013 vide chapter IV specifically regulates the mechanism for Transfer & Transmission of Securities. Hence, as per Section 430 of the Companies Act,2013 "Civil Court not to have Jurisdiction" on such issues.

FACT OF THE CASE

1.  The Appellants are aggrieved by the impugned order of the NCLT, Bangalore Bench which directed the 1st Appellant Company to give effect to the transmission of shares of the deceased Director and Shareholder of 1st Appellant Company in favour of Respondents by rectifying itsregister of members and also to pay all consequential benefits at par with other shareholders.

2.  The Tribunal has observed that the Appellant Company is exercising arbitrary powers conferred on the Company and its Directors by Article of Association of this Company and it amounts to oppression.

3.  The Appellants have alleged that the Respondents are putting pressure on the Appellants for transmission of 5000 equity shares without complying with the Indian Laws IntestateSuccession. 

4.  Further, the Appellants have submitted that the Article of Association of the company is conferring discretion upon the Board of Directors in transmission matters. 

5.   They have also raised the issue that the Tribunal has decided "Civil Right of inheritance of the respondent qua the shares held by the deceased members". It is a settled principle of law that such an adjudication regarding the rights of inheritance can be made only on a civil suit filed for such adjudications before Civil Court of competent jurisdiction and have cited certain judgments. The Tribunal has entered into the area of discretion granted to the Board of Directors.

JUDGMENT

The NCLAT observed that the Appellant Company have not assigned a tenable or sound reason as well as taken the correct approach to the issue of transmission. 

Further, the Companies Act,2013 vide chapter IV specifically regulates the mechanism for Transfer & Transmission of Securities. Hence, as per Section 430 of the Companies Act, "Civil Court not to have Jurisdiction"on such issues. Hence, NCLAT upheld the order of NCLT, Bengaluru Bench and the Appeal is dismissed.

SECTION 430 of the Companies Act, 2013- 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 Tribunal.

CONCLUSION

Since provisions of Section 430 of the Companies Act,2013 has conferred power to deal with matters of transfer or transmission of shares to the Tribunal and hence civil court does not have power to entertain such disputes.

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