NCLT Has Exclusive Jurisdiction Over Internal Company Mismanagement Disputes: Bombay High Court

The Bombay High Court on 4 May held that civil courts cannot entertain interim relief claims arising from allegations of internal company mismanagement, as such disputes fall within the jurisdiction of the National Company Law Tribunal (NCLT) under the Companies Act, 2013.

Justice Gauri Godse dismissed interim applications filed by Ocean Deity Investment Holdings Ltd. and Mack Star Marketing Pvt. Ltd. against Vikram Homes Pvt. Ltd. in a dispute concerning the sale of commercial units allegedly linked to the promoters of Housing Development and Infrastructure Ltd. (HDIL). She observed:

“Therefore, in view of Section 430 of the Companies Act, the civil court's jurisdiction would be barred from dealing with the allegations regarding the affairs of the company, which are required to be dealt with under Sections 241 and 242 of the Companies Act. Hence, at this preliminary stage, the plaintiff would not be entitled to seek any interim relief on the ground of mismanagement of the affairs of plaintiff no. 2 company by making allegations against its erstwhile board of directors and shareholders.”

Ocean Deity, a Mauritius-based investment company holding a 78.09% stake in Mack Star Marketing Pvt. Ltd., challenged the sale of commercial units in Mack Star's building to Vikram Homes Pvt. Ltd. The plaintiffs alleged that the Wadhawan family, promoters of HDIL, controlled Mack Star's board and orchestrated the transaction to divert value to HDIL.

The plaintiffs contended that the sale was ultra vires the company's Articles of Association, fraudulent and carried out without proper authority. They further alleged that Vikram Homes was connected to the Talwar family and pointed out that Satyapal Talwar had served as a director of HDIL and was closely associated with the Wadhawans. They sought cancellation of the sale deed and appointment of a receiver over the properties.

Vikram Homes argued that it was a bona fide purchaser for value and had paid full consideration under a registered sale deed. It submitted that the dispute arose from allegations concerning shareholder rights, board control and internal management of Mack Star, matters that fall within the exclusive jurisdiction of the NCLT under the Companies Act.

The defendant further argued that it was in lawful possession of the properties and that granting interim relief would effectively dispossess a registered owner without trial.

The Court examined the pleadings and found that the allegations of fraud and diversion of assets were inseparably linked to the internal affairs of Mack Star. It held that disputes concerning shareholder rights, board control and alleged mismanagement must be adjudicated by the Company Tribunal.

Justice Godse also noted that Vikram Homes held a registered sale deed supported by consideration and remained in possession of the properties. It held that the plaintiffs failed to establish a strong prima facie case warranting interim relief against a registered owner.

Distinguishing the precedents cited by the plaintiffs, the Bench observed:

“In the present case, the plaintiff has alleged indoor mismanagement of its own company; hence, in a suit seeking relief against the third party based on the allegations regarding internal affairs of the company, neither of the decisions would be of any assistance to the plaintiffs to seek interim relief as prayed in the present application”

Accordingly, the High Court dismissed the interim applications.

For Plaintiffs: Advocates Dr Birendra Sarf, Siddhartha Ranade, Prakash Jain, Neeraja Barve and Mahima Tahiliani

For Defendants: Advocates Nikhil Sakhardande, Shubra Swami, Pratik Pawar, Shanaya Cyrus Irani and Jatin Asrani and Sagar Associates