Issues related to disputes of shareholders to be tried before NCLT and not before Civil Court: rules HC

Case details: Jaiveer Singh Virk v. Sir Sobha Singh & Sons (P.) Ltd. - [2021] 129 taxmann.com 14 (Delhi)

Judiciary and Counsel Details

• • Manmohan and Sanjeev Narula, JJ.
  • Rajshekar Rao, Adv. for the Appellant.
  • Ritin Rai, Sr. Adv., Aabhas Kshetrapal, Ms. Monika Phartyal and Anand Singh, Advs. for the Respondent.

Facts of the Case

In the given case, “Sobha Singh”, a prominent builder and real estate developer in Delhi, incorporated a family-owned private company (herein referred to as Respondent). All his family members and descendants were made shareholders, including the appellant. Respondent had inter alia, built Sujan Singh Park as Delhi’s first housing complex, consisting of 84 residential flats.

It was decided that both male and female descendants of ‘Sobha Singh’, up to the fourth generation, would receive a flat each in Sujan Singh Park. To this effect, a seniority-wise list of 23 great-grand-children was made, to whom an allotment would be made by respondent-company whenever a flat fell vacant. The same was recorded by way of a family settlement, as well as a Board Resolution of the respondent company. This practice was being followed, and 17 grandchildren were allotted flats by way of seniority. The appellant (being a 4th generation descendant) stood at number 18 on the list.

Despite being next in line, the appellant claimed he was overlooked and the next vacant flat was allotted to a descendant who was below the appellant in the list. Thereafter, when another flat became vacant, the respondent company, instead of allotting the flat to the Appellant, resolved to sell it.

On the strength of his right arising out of said Board Resolution, appellant filed writ seeking possession of flat, mandatory injunction to Respondent Company to allot said flat, and cancellation of allotment made out-of-turn, as well as damages (being notional rent that could have been accumulated from timely allotment of flat).
The Single Judge held, that the issues raised were to be raised before the specialized tribunal constituted therein, being the National Company Law Tribunal.
On being aggrieved, by the decision of the Single Judge, an appeal was filed before the High Court.

High Court Held

The High Court ruled that a corporation can modify its choices at any moment, as long as it does so in line with the law. If the firm violates such a ruling, the appellant, as an aggrieved shareholder, must bring the matter to the attention of the relevant forum.
The right protected under the claimed Board Resolution, if any, lies within the management of the company’s affairs. The appellant’s entitlement as a shareholder concerns a management issue. This isn’t something that can be enforced in a civil court. The matter will have to be brought before the proper body, which is the erstwhile Company Law Board under the 1956 Act and now the NCLT under the 2013 Act, which has jurisdiction over issues pertaining to shareholder disputes relating to the management of a company.

List of Cases Referred to

• • Deepa Anant Bandekar v.Rajaram Bandekar (Sirigao) Mines (P.) Ltd.  [1992] 74 Camp Case 42 (Bom.) (para 3.1)
  • Deepa Anant Bandekar v. Rajaram Bandekar (Sirigao) Mines (P.) Ltd.  [1994] 80 Camp Case 491 (Bom.) (para 3.1)
  • V.B. Rangaraj v. V.B. Gopalakrishnan [1992] 1 SCC 160 (para 3.4)
  • Vodafone International Holdings BV v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR (SC) (para 3.4)
  • World Phone India (P.) Ltd. v. WPI Group Inc. USA  [2013] 32 taxmann.com 238/119 SCL 196 (SC) (para 3.4)
  • HTA Employees Union v. Hindustan Thompson Associates Ltd. 2013 SCC OnLine Delhi 3000 (para 3.4)
  • Singer India Ltd. v. Chander Mohan Chand [2004] 7 SCC 1 (para 3.4)
  • Elof Hansson (I) (P.) Ltd. v. Shree Acids & Chemicals Ltd. 2012 SCC OnLine Del 572 (DB) (para 3.5)
  • Saga Lifestyle (P.) Ltd. v. Bang & Olufsen 2019 SCC OnLine Delhi 8412 (para 3.5)
  • Anirban Roy v. Ram Kishan Gupta MANU/DE/3524/2017 (para 3.5)
  • VK Uppal v. Akshay International 2010 SCC OnLine Del 538 (para 3.5)
  • R.K. Chaddha v. State of U.P. [2015] 54 taxmann.com 144/49 GST 682 (All.) (para 3.5)
  • M. V. Sea Success I v. Liverpool & London Steamship Protection & Indemnity Association Ltd. 2001 SCC OnLine Bom. 1019 (DB) (para 3.5)
  • Binatone Computers (P.) Ltd. v. Setech Electronic Ltd. 2009 SCC OnLine Del 2522 (para 3.5)
  • Kimiya Shipping Inc. v. M.V. Western Light 2014 SCC OnLine Bom 257 (para 3.5)
  • Gopi Vallabh Solutions (P.) Ltd. v. State of West Bengal 2018 SCC OnLine Cal. 9035 (para 3.5).