NCLT Has No Jurisdiction to Inquire into Allegations of Fraudulent Recording of Names in Members’ Register | HC

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  • Last Updated on 25 September, 2023

NCLT jurisdiction

Case Details: Phool Chand Gupta v. Mukesh Jaiswal - [2023] 154 taxmann.com 113 (HC-Calcutta)

Judiciary and Counsel Details

    • Soumen Sen & Uday Kumar, JJ.
    • Kuldip MallikMs Labanyasree SinhaShiven Ray, Advs. for the Appellant.
    • Swatarup BanerjeeSourav SenguptaAman Baid, Advs. for the Respondent.

Facts of the Case

In the instant case, the company ‘D4’ was incorporated as a closely held family company by ‘S’. After the death of ‘S’, the said company was survived by his wife and two sons and the plaintiff (i.e. elder son) was inducted as a director of the said company along with other directors.

After his induction, the plaintiff discovered that ‘D2’ and ‘D3’ (defendants), who did not have any connection with the company, jointly held shares equivalent to 32.69% shares in ‘D4’.

The plaintiff filed a suit for declaration and injunction before the High Court seeking relief that the shares recorded in the name of the defendants were illegal, fraudulent, null and void and sought cancellation of the share certificates issued in favour of the defendants.

The defendants filed an application before the High Court on the ground that the suit filed by the plaintiff was impliedly barred in terms of section 9 of the CPC and Companies Act, 2013 and disputes in the plaint fell within the exclusive jurisdiction of the NCLT and, therefore, the suit filed by the plaintiff was not maintainable.

However, the High Court vide the impugned order held that the NCLT was not competent to enquire into the allegation of fraud especially when the plaintiff had prayed for a declaration that the names of defendants as shareholders in the books and register of the company were recorded fraudulently and, thus, the suit filed by the plaintiff was maintainable.

Aggrieved by the impugned order, the defendants filed an instant appeal before the Division Bench of the High Court.

High Court Held

The High Court held that the NCLT would have jurisdiction to decide a rectification proceeding where facts are self-evident and does not call for any serious enquiry or adjudication of fraud. It would depend on the facts of a case. However, averments made in a suit by the plaintiff were for fraud and not for rectification of the register under sections 58 and 59 of the Companies Act, 2013.

Therefore, the impugned order passed by the Single Judge of the High Court was justified.

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