Delhi High Court: Cannot confer jurisdiction to NCLT when not empowered under Companies Act

Delhi High Court: Cannot confer jurisdiction to NCLT when not empowered under Companies Act

The court was of the opinion that the plea of the defendant that the present suit is not maintainable and only a petition before the NCLT is maintainable, is liable to be rejected

The Delhi High Court by a single judge, Justice Mukta Gupta, ruled on 22 January 2021 in favor of the plaintiffs' (Naresh Dayal and Others) and observed that Section 434(1)(c) of the Companies Act cannot be interpreted to confer jurisdiction on the National Company Law Tribunal (NCLT) with respect to the cause of action over which it has no power under the Companies Act.

The Court was dealing with a representative suit filed by seven plaintiffs - Naresh Dayal and Others - who were permanent members of Delhi Gymkhana Club.

The plaintiff's complaint was that the Club, a non-profit Company by Guarantee, was conferring 'Green Cardholder' status on a certain category of persons though the same was not provided for in its Articles of Association (AoA).

The plaintiffs' argued that under the AoA, the Club classified its members in five categories, i.e., Permanent, Garrison, Temporary, Casual and Special Category. However, after attaining the age of 21 years, children of the permanent members continued to use the facilities of the Club upon applying for permanent membership in which case they are issued a Green Card despite the fact that no concept of Green Card is provided in the AoA.

The plaintiffs' contended that the facility of Green Card was not being extended to those children who did not enjoy the facilities of the Club as minors and that such classification was inequitable. In the suit, the plaintiffs' prayed for a decree declaring Clause 13(3)(b) of AoA to extend Green Card to the children of all the permanent members irrespective of their age and whether they had used the facilities of the Club or not as minors.

On the other hand, defendants- The Delhi Gymkhana Club Limited defended that the present suit was not maintainable as the appropriate forum to deal with the issue was the NCLT under Section 242 of the Companies Act.

The Club stated that under Section 242 of the Companies Act, not only was there a provision of the winding up of the company but other issues could also be considered and decided by the NCLT.

The plaintiffs' retaliated that since the present case concerned enforcement of a civil right relating to the interpretation of the AoA, as opposed to corporate rights, the remedy was before a civil court and not NCLT.

The Delhi Court felt it was necessary to first address the issue - Whether this High Court does not have jurisdiction to entertain the present suit in view of the provisions of the Companies Act, 2013 and the jurisdiction of the NCLT?

To this, the Court observed, "Section 434(1)(c) of the Companies Act directs transfer of all cases pending in District Courts and High Court to NCLT, subject to the NCLT having jurisdiction in terms of Section 241 of the Companies Act and being barred under Section 430 of the Companies Act. Section 434(1)(c) even if expansively interpreted cannot confer jurisdiction in the NCLT to decide matters which it is not empowered in terms of the Companies Act."

Court further took note in the suit that neither had it alleged any oppression, misbehaviour classification of accounts of the Club nor did it seek winding up or rectification of record.

In the suit, plaintiffs' sought for equal treatment for all members after membership was granted and permanent injunction against those who are not members but enjoying facilities which are meant only for permanent members, which the Court considered.

The Court proceeded to analyse Section 434(1)(c) of the Companies Act, on the transfer of matters to the NCLT and held that although the term 'including' in the Section had to be given a broad interpretation, it would not include issues which are not within the jurisdiction of the NCLT.

The Court further observed that Section 242 of the Companies Act proposes an action before the NCLT when the affairs of the company were being conducted in a manner prejudicial or oppressive to any member or members and would justify the makings of a winding-up order.

However, the Court pointed out that the plaintiffs did not claim winding up and the cause of action was the manner in which Article 13(3)(b) of the AoA was being interpreted to create an irrational and illegal classification.

The Court concluded that "the NCLT not being empowered to determine the said cause of action, this Court is of the opinion that the plea of the defendant that the present suit is not maintainable and only a petition before the NCLT is maintainable, is liable to be rejected."