Merely Agitating Issues Of Fraud Or Forgery Doesn’t Dilute Bar U/S 430 Of Companies Act: Delhi High Court

The Delhi High Court held that merely agitating issues of fraud or forgery will not dilute the bar under Section 430 of the Companies Act, 2013 and it is for the Tribunal to make an assessment as to whether there is any cogency in such allegations.

The Court was hearing a Revision Petition preferred against the Order of the District Judge by which the Application seeking rejection of the Plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) was dismissed.

A Single Bench of Justice Amit Mahajan observed, “… merely agitating issues of fraud or forgery will not dilute the bar under Section 430 of the Companies Act, 2013 and it is for the Tribunal to make an assessment as to whether there is any cogency in such allegations and if the dispute is so complex that it cannot be decided by the Tribunal. The thin line is that if the dispute truly, in pith and substance, concerns rectification simpliciter or statutory oppression and mismanagement or matters falling under the broad Companies Act regime, the specialised Tribunal is vested with exclusive jurisdiction to determine the same along with any other ancillary issues that are integral to determine the issue at hand. If such an argument is accepted, parties will agitate issues of fraud and coercion to simply cause ouster of NCLT’s jurisdiction. This makes it important that once a case is instituted before NCLT involving such issues as well, no such case as the present one be instituted which involves the same issues, before NCLT itself makes a determination in regard to the cogency and complexity of the dispute.”

The Bench said that mere plea of forgery or fraud is not sufficient, by itself, to overcome the bar under Section 430 of the Companies Act and the jurisdiction of the Tribunal can only be ousted when the issue involved is not “within the peripheral field of rectification” and pertains to extensively complex questions.

Senior Advocates Mukul Rohtagi, Sandeep Sethi, and Rajesh Yadav represented the Petitioner, while Senior Advocates Ravi Shankar Prasad and Rajshekhar Rao represented the Respondents.

Factual Background

A suit was filed by the Plaintiffs/Respondents seeking declaration of certain documents as non est, null and void claiming that the said documents bore the forged signatures of the Plaintiffs. They also sought a decree of permanent injunction restraining the Defendants/Petitioner from acting upon the subject documents. It was the case of the Plaintiffs that they are founders of the Respondent company which is a research-led, high-tech startup focused on designing, developing and manufacturing world class Unmanned Aerial Vehicle (UAV) for the defence forces of India. It was claimed that in the year 2019, the said company was in dire need of funds for making the required products for the final phase of a competition, when Respondents were introduced to the partner of the Petitioner firm, who agreed to extend loans from his wife’s account.

It was claimed that without the knowledge of the Plaintiffs, the said partner’s wife tendered her resignation and a fabricated Board resolution was issued to this effect under the forged letter head of the company under signatures of the partner. The Plaintiffs learnt about the same but due to loan liabilities, they were unable to take any action. Soon thereafter, the Plaintiffs were served with a Petition filed by the Petitioner firm before the NCLT for oppression and mismanagement. It was claimed that the signatures of the Plaintiffs on the documents in question were forged. A police compliant was made by the Plaintiffs to this effect. Whereas, the firm filed an Application under Order VII Rule 11 of CPC on the ground that the Court lacks subject matter jurisdiction to entertain the plaint in view of the bar under Section 430 of Companies Act. The Trial Court rejected the grounds of the firm and found that the objections could be considered at the time of framing of issues. Hence, the case was before the High Court.

Reasoning

The High Court after hearing the contentions of the counsel, noted, “It is apparent from the aforesaid judgments that there is nothing in the Companies Act, 2013 which estops the NCLT from rendering a finding that the documents in question are forged, even under summary procedure, and the learned Trial Court has erred in holding that only the Civil Court is empowered to decide matters pertaining to fraud.”

The Court explained that the questions pertaining to fraud are not alien to the NCLT as a Tribunal and as per the statute itself, it is apparent that the NCLT is capable to take a decision on the same.

“The fact that the jurisdiction under sub-section 3 of Section 241 the Companies Act, 2013 can be invoked only by the Central Government would not dilute the jurisdiction of the NCLT to take cognizance of the matters concerning fraud, etcetera and to pass appropriate orders”, it added.

The Court said that even if it is to be assumed that the forgery is so complex that it cannot be untangled by NCLT under a summary procedure, such pleas qua fraud or forgery cannot confer the jurisdiction upon the Civil Court to pre-empt adjudication of issues, which are already pending determination, before the NCLT has a chance to assess the material on record and arrive at such a conclusion, especially when NCLT prima facie seems empowered to look into the said issue and concluding otherwise would result in pleas of fraud being agitated solely to oust the jurisdiction of the NCLT.

“While it may be correct that the documents in question are not part of the statutory record of Respondent No. 4 company, even otherwise, the Tribunal has wide powers to test the cogency of non-statutory documents as is evident from the Companies Act, 2013 as well as the NCLT Rules, 2016. … In the opinion of this Court, the issue of fraud and fabrication as agitated by the plaintiffs is incidental and integral to the complaint alleging oppression and mismanagement filed by the petitioner, and the same thus falls within the remit of the learned NCLT”, it observed.

The Court was of the view that a Civil court’s jurisdiction is ousted only to the extent the statutory forum is expressly and correspondingly empowered, and such exclusion is not to be lightly inferred, however, it has since been settled by the Apex Court that the NCLT possesses a wide jurisdiction to decide such issues which are integral to the subject complaint.

“Undisputably, where the plaintiff asserts public rights or raises seriously disputed questions of title that require declaratory and injunctive relief after evidence and trial, the remedy lies in the civil court. However, as noted above, in the present case, the issues sought to be agitated in the suit are such which are integral to the petition already filed by the petitioner before the learned NCLT”, it further said.

The Court also noted that the ouster of jurisdiction of Civil Court is not limited to or conditional on the ability of the Tribunal to grant a relief of a particular nature and is rather hedged upon the wider phrase – “any matter”, which the Tribunal is empowered to determine and thus, the Trial Court has erred gravely in limiting the applicability of the ouster in Section 430 of the Companies Act, 2013 on the basis of the apparent inability of the NCLT to grant a particular relief.

“Though a party cannot approach the Tribunal for solely seeking declarations qua title, the NCLT is empowered to determine such an issue if the same is integral to the complaint instituted before it and to nullify the effect of the subject documents in pursuance of a just and equitable resolution”, it added.

The Court remarked that if the suit is allowed to continue, the same would also lead to multiplicity of proceedings which could lead to conflicting opinions on the same issues of fact and law.

“Section 430 of the Companies Act, 2013 must be applied on the same first principles that animate in Section 34 of the SARFAESI Act. … As discussed above, the bar on the jurisdiction of the Civil Court is coextensive with the aspects which the special forum is empowered to determine, and not greater. The test is substance, not form. If the core controversy is one which the NCLT is empowered to decide by or under the Companies Act, the Civil Court’s jurisdiction stands excluded to that extent and no injunction should be granted in respect of any action taken or to be taken under the Act”, it emphasised.

Conclusion

Furthermore, the Court remarked that clever drafting or crafty legal strategies must not be allowed to frustrate the process of law before the NCLT. It added that in every case, where the controversy is anchored in the company’s affairs and the issue is one which the Tribunal or the Appellate Tribunal is empowered to determine the matter in question, Section 430 of the Companies Act bars parallel civil suits and compels recourse to the NCLT and, in Appeal, to the NCLAT, strengthening the case for regaling such disputes to the NCLT.

“Even if the case of the plaintiffs is taken at the highest, the doctrine of judicial comity emphasises mutual respect and deference among courts to avoid conflicting decisions and to promote judicial harmony and may be invoked in challenges under Order VII Rule 11(d) of the CPC (rejection of plaint as “barred by any law” due to statutory ouster or parallel proceedings). While comity is discretionary and often overlaps with statutory bars, it serves as an underlying principle to interpret these provisions, particularly in cases of concurrent jurisdiction or multiplicity of proceedings”, it said.

The Court, therefore, concluded that once the issues as raised in the plaint have already been agitated in the Company Petition filed by the Petitioner and the NCLT is seized of the said integral issues, the Civil Court cannot assume jurisdiction to adjudicate the same, unless it is so found at a subsequent stage while determining the issues at hand that the matter requires detailed and extensive trial into the allegations which cannot be undertaken by the NCLT.

Accordingly, the High Court allowed the Petition and set aside the impugned Order.

Cause Title- M/s Karyan Global LLP v. Vivek Kumar Mishra and Ors. (Neutral Citation: 2025:DHC:10855)

Appearance:

Petitioner: Senior Advocates Mukul Rohtagi, Sandeep Sethi, Rajesh Yadav, and Advocate Preet Singh Oberoi.

Respondents: Senior Advocates Ravi Shankar Prasad, Rajshekhar Rao, Advocates Shubhaankar A. Sengupta, Aarush Bhatia, Zahid Laiq Ahmed, Amit Prasad, and Dhruv Pande.

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