Court rules civil jurisdiction barred, directs disputes to Company Law Tribunal
In a significant ruling, the Bombay High Court has dismissed the interim relief sought by Ocean Deity Investment Holdings Limited in a case involving allegations of fraudulent transactions within the company's management. The suit, filed by Ocean Deity, aimed to cancel a sale agreement of a commercial property involving Sarang Wadhawan and associated parties, claiming it was executed in violation of the company's Articles of Association and vitiated by fraud.
Justice Gauri Godse, presiding over the matter, held that disputes concerning the internal management and affairs of a company are within the exclusive jurisdiction of the Company Law Tribunal as per Sections 241 and 242 of the Companies Act, 2013. Consequently, under Section 430 of the Act, the civil court's jurisdiction is barred from adjudicating these matters, leading to the dismissal of the interim application.
Ocean Deity, which holds a significant stake in the plaintiff company, alleged that the transaction was orchestrated by the Wadhawan family, who were deeply entwined with the company’s management and also connected to Housing Development and Infrastructure Limited (HDIL), which is undergoing insolvency proceedings. The company sought the appointment of a court receiver and an injunction to prevent the sale’s beneficiary, defendant No. 5, from creating third-party rights or benefiting from the property.
The defense, led by defendant No. 5, argued that the transaction was legitimate, executed with full consideration and stamp duty payment, and based on the terms established in a Memorandum of Understanding (MOU) from 2009. They contended that the suit was time-barred and involved internal disputes that should be addressed through company law provisions, not civil court proceedings.
Justice Godse highlighted that the allegations pointed to internal management issues, which require resolution under the Companies Act, reinforcing the tribunal’s jurisdiction over civil courts in such cases. The court also noted the absence of a prima facie case, balance of convenience, or irreparable loss, which are essential for granting interim relief.
As a result, the Bombay High Court dismissed the application for interim relief, stating that the appointment of a court receiver or injunction against defendant No. 5, a bona fide purchaser, was not justified at this stage.
Bottom line:-
A civil court's jurisdiction is barred under Section 430 of the Companies Act, 2013, for disputes concerning the internal management and affairs of a company, which are to be adjudicated under Sections 241 and 242 of the Act.
Statutory provision(s): Section 241, Section 242, Section 430 of the Companies Act, 2013
Ocean Deity Investment Holdings Limited v. Sarang Wadhawan, (Bombay) : Law Finder Doc id # 2892770
