Challenging Legal Norms: Analysis Of The EIMPA Judgment - Shareholders - India (2024)

The legal landscape surrounding corporate disputes in Indiaunderwent a significant transformation with the enactment of theCompanies Act, 2013 ("Act"). Section 430of the Act delineates the exclusive jurisdiction of the NationalCompany Law Tribunal ("NCLT") and theNational Company Law Appellate Tribunal("NCLAT"), prohibiting civil courts fromadjudicating matters falling within the purview of these tribunals.The aforementioned provision, introduced in 2016, aimed tostreamline dispute resolution mechanisms and enhance efficiency incorporate governance. However, a recent judgment by the CalcuttaHigh Court in the case of Eastern Indian Motion PictureAssociation & Ors. v. Mr. Milan Bhowmik("EIMPA Judgment")¹ haschallenged this statutory framework, raising pertinent questionsabout the interplay between specialized tribunals and civil courtsin resolving shareholder disputes.

Legal Landscape: Understanding the Statutory Framework

Section 430 of the Act states that "No civil courtshall have jurisdiction to entertain any suit or proceeding inrespect of any matter which the Tribunal or the Appellate Tribunalis empowered to determine by or under this Act or any other law forthe time being in force and no injunction shall be granted by anycourt or other authority in respect of any action taken or to betaken in pursuance of any power conferred by or under this Act orany other law for the time being in force, by the Tribunal or theAppellate Tribunal."

The section clearly states that civil courts cannot handle casesthat fall under the NCLT's jurisdiction, as defined by the law(which has been in place since the inception of the aforesaidTribunals). It means civil courts cannot deal with certaindisputes, like shareholder complaints listed in Section 241 of theAct. This section enables any member who is of the view that thecompany is harming the public interest, treating them in aprejudicial/oppressive manner, or hurting the company'sinterests, to complain to the NCLT. Such complaints can be made ifthere are big changes in the company's management or control,like changes in the Board of Directors, management, ownership ofshares, or membership, and if these changes are likely to beprejudicial company or its members. Also, the government apply tothe NCLT for an order if it thinks the company's actions areagainst the public interest. This process was instituted to makedispute resolution smoother and more streamlined. However, theEIMPA Judgment questions if these specialized tribunals areoptimally suited to solve corporate disputes of this nature.

Case overview and Decision

In the EIMPA case, two members Mr. Milan Bhowmik and Md. NurulHussain of Eastern India Motion Picture Association("Company") without share capitalbrought a challenge before the Calcutta High Court regarding theelection of the company's executive committee for the term2021-2023. They alleged that this election violated thecompany's Articles of association("AOA") and election conduct rules ofthe company.

In response, the defendants filed an application under Order 7Rule 11 of the Code of Civil Procedure, 1908, pointing out thestatutory restriction in Section 430 of the Act. They argued thatthe subject matter of the suit fell within the scope of section241(1)(a) of the Act, thus contending that the Calcutta High Courtlacked jurisdiction to entertain the suit.

The members countered this by asserting that Section 244(b) ofthe Act stipulated that at least 1/5^th of thecompany's members could jointly approach the NCLT, underSection 241 of the Act, in case of a company not having a sharecapital. Since only two members raised the grievance in this case,they argued that the NCLT lacked jurisdiction to hear the matter,and it should be pursued in a civil court.

Interestingly, the single judge found merit in this argumentdespite the defendants highlighting that the NCLT had the authorityto waive this minimum requirement under Section 244. The trialjudge had reasoned that "since the plaintiffs were onlytwo in number, they did not possess the requisite strength to applyand had rightly approached the civil court by this suit".He rejected the defendants' argument relating to a waiver underSection 244, citing that considering the application would betime-consuming and that a civil suit would be a more effectiveremedy.

The single judge ultimately rejected the Order 7 Rule 11application, which was challenged by the defendants before thedivision bench.

After careful consideration, the division bench concurred withthe single judge's approach, finding his reasoning plausible.Moreover, the division bench elaborated on the single judge'srationale, stating that "if the plaintiffs approached thetribunal for dispensing with the eligibility criteria, there was noguarantee that the tribunal would allow the application. In theevent the tribunal rejected the application the plaintiffs wouldhave to approach the civil court. The plaintiffs were justified inavailing of a certain remedy rather than one which did not existbut could come into existence on fulfilment of an uncertaincondition."

Consequently, the division bench dismissed the appeal, affirmingthat the suit filed by the members was maintainable, and theirdecision to directly approach the civil court was appropriate.

Conclusion

The EIMPA Judgment represents a pivotal moment in India'slegal landscape, underscoring the complexities inherent inbalancing statutory mandates with judicial discretion. The CalcuttaHigh Court allowed the litigants to not be restricted toapproaching the NCLT (with a matter that would ultimately hinge ofthe NCLT's exercise of its discretion) and pursue theirgrievances in a civil court instead. This approach commences morenuanced discussions about the consistency and predictability ofjudicial outcomes in corporate law matters. As stakeholdersnavigate these legal uncertainties, it becomes imperative tocontextualise statutory provisions with the evolving legaldynamics. The EIMPA Judgment serves as a poignant reminder of theneed for clarity and coherence in India's corporate governanceframework, ensuring equitable access to justice and fosteringconfidence in the legal system.

Footnote

1.2024 SCC OnLine Cal 1325.

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