Application to enforce shareholders right under board resolution is to be made before NCLT

Jaiveer Singh Virk Vs Sir Sobha Singh & Sons Pvt. Ltd. (Delhi High Court)

The next question is- what is the nature of Appellant’s right and whether such a right is enforceable under law? The Appellant asserts that he is a shareholder of Respondent No. 1, which is a corporate entity, incorporated in the year 1945 under the erstwhile Companies Act, 1913. This perceived right as a shareholder is asserted on the basis of a Board Resolution. Let’s first understand the purport of a Board Resolution under company law. The management of the company, which comprises of the board of directors selected by the shareholders, takes decisions by passing resolutions, which are formalized as ‘Board Resolutions’. A Board Resolution serves as a formal and accurate record of the important decisions taken by the Board of Directors of a Company. The learned Single Judge is correct in observing that the Company can, from time to time, change its decisions, subject to the same being in accordance with the law. If Respondent No.1 is indeed in breach of such a decision, the Appellant as an aggrieved shareholder is to raise the issue before the appropriate forum. To look for a remedial jurisdiction, firstly we must discern the right sought to be pressed by the Appellant as a shareholder. Although the Appellant would like to consider this right to be of a ‘future allottee in the Family Agreement’ and also as one recorded through the Board Resolution, but we cannot accede to this proposition. In our opinion, the right, if any, preserved under the alleged Board Resolution, falls within the domain of management of the affairs of Respondent No. 1. This right of Appellant as a shareholder relates to a management issue. This cannot be enforceable before a Civil Court. The dispute will have to be agitated before the appropriate forum which has the jurisdiction to deal with issues relating to the disputes of the shareholders relating to management of a company, namely the erstwhile Company Law Board under the Companies Act, 1956 and now the NCLT under the Companies Act, 2013.

It has also been argued that Section 430 of the Companies Act, 2013 was notified on 1^st June, 2016, and whereas Appellant’s suit was instituted on 9^th May, 2016 and hence the aforesaid provision would have no applicability to the present case. We are conscious of the fact that under the Companies Act, 1956 there was no provision like Section 430 providing for ouster of jurisdiction, however, there cannot be any dispute that as on this day, the civil remedy would be completely ousted under Section 430 of the Companies Act, 2013. Relegating the parties to continue with the civil suit would thus not be appropriate remedy, considering the manner in which Section 430 of the Act is couched and the appropriate course for the Appellant would be to avail its remedy before the NCLT. Further even if one were to examine the issue is the context of Companies Act, 1956, there is sufficient case law that holds that the jurisdiction of the Civil Court in matters relating purely to issues pertaining the management of the company can not be gone into any civil suit. Here it also becomes relevant that since the father of the Appellant was pursuing a remedy before the NCLT, the appropriate course of action for the Appellant is to approach the said forum. We therefore, do not find any error in the reasoning of the learned Single Judge on this count, as well.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

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