Companies Act Case Law Canara Bank Vs Nuclear Power Corporation Of India Ltd. And Ors.

PETITIONER:
CANARA BANK

Vs.

RESPONDENT:
NUCLEAR POWER CORPORATION OF INDIA LTD. AND ORS.

DATE OF JUDGMENT06/03/1995

BENCH:
BHARUCHA S.P. (J)
BENCH:
BHARUCHA S.P. (J)
VERMA, JAGDISH SARAN (J)
PARIPOORNAN, K.S.(J)

CITATION:
1995 SCC Supl. (3) 81 JT 1995 (3) 42
1995 SCALE (2)162
ACT:

 

HEADNOTE:

 

JUDGMENT:
BHARUCHA, J.:
1. Leave granted.
Facts
2. This is an appeal from the judgment and order of the
Company Law Board which raises an interesting question as to
the exclusive jurisdiction of the Special Court constituted
under the provisions of the Special Court (Trial of Offences
relating to Transactions in Securities) Act, 1992. The
Company Law Board (CLB) has held that its jurisdiction to
deal with matters relating to securities, provided by the
Companies Act, 1956, is not affected by the Special Court
Act.
3. The question arose in these circumstances. The Canara
Bank (the appellant) had made an application before the CLB
46
under Section III of the Companies Act seeking relief
against the Nuclear Power Corporation of India Ltd. (the
first respondent), which had refused to register in its
books in the name of the Canara Bank bonds of the Nuclear
Power Corporation purchased by the Canara Bank. The Stan-
dard Chartered Bank (the fourth respondent) had also claimed
ownership of the said bonds. The Canara Bank alleged that
it had acquired the said bonds from the Andhra Bank
Financial Services Ltd. (the third respondent) through one
Hiten P. Dalal, (the second respondent) who had acted as a
broker. Hiten P. Dalal is a person notified under the
provisions of Section 3(2) of the Special Court Act and was,
as the application of the Canara Bank before the CLB showed,
involved as a broker in the transaction relating to the said
bonds. The application of the Canara Bank was pending
disposal before the CLB when, on 25th January, 1994, the
Special Court Act was amended by the Special Court (Trial of
Offences Relating to Transactions in Securities) Amendment
Ordinance, 1994, and Section 9-A was introduced. The Canara
Bank and the Nuclear Power Corporation took the stand that
the application of the Canara Bank stood transferred to the
Special Court by virtue of the provisions of Section 9-A(2)
of the Special Court Act. The Standard Chartered Bank
(Stanchart) contended that the CLB retained the jurisdiction
to deal with the application. The CLB held that it was not
a court within the meaning of the Companies Act nor was it a
civil court. Its jurisdiction was, therefore, unaffected by
the provisions of Section 9-A (2) of the Special Court Act.
The Special Court Act.
4. The Special Court act was enacted to provide for the
establishment of a special court for the trial of offences
relating to transactions in securities and matters connected
therewith or incidental thereto. Securities were defined in
Section 2(c) to include shares, scrips, stocks, bonds, de-
bentures, debenture stock, units and other marketable
securities of a like nature, Government securities and
rights or interests in securities. Section 3(1) provided
for the appointment by the Central Government of a
Custodian. By reason of Section 3, the Custodian was
empowered, on being satisfied on information received that
any person had been involved in any offence relating to
transactions in securities after 1st April, 1991, and before
6th June, 1992 (the stated dates), to notify the name of
such person in the Official Gazette. On and from the date
of such notification, by reason of Section 3(3), property,
movable and immovable, belonging to the person notified
stood attached and, by reason of Section 3(4), could be
dealt with by the Custodian in such manner as the Special
Court directed. Section 4(1) empowered the Custodian, if he
was satisfied, after such inquiry as he thought fit, that
any contract or agreement entered into at any time between
the stated dates in relation to any property of a person
notified had been entered into fraudulently or to defeat the
provisions of the Special Court Act, to cancel such contract
or agreement and, on such cancellation, such property stood
attached. Such cancellation was required to be preceded by
a reasonable opportunity to the parties to the contract or
agreement to be heard. Any person aggrieved by notification
under Section 3(2) or Section 4(1) was entitled to file a
petition of objection before the Special Court. The Special
Court was established by. It was to consist of a sitting
Judge of the
47
High Court nominated by the Chief Justice of the High Court
within the local limits of whose jurisdiction the Special
Court was situated, with the concurrence of the Chief
Justice of India. Section 6 empowered the Special Court to
take cognizance of and try such cases as were instituted
before it or transferred to it. Section 7 dealt with the
jurisdiction of the Special Court and it read thus :
“7. Jurisdiction of Special Court – Not-
withstanding anything contained in any other
law, any prosecution in respect of any offence
referred to in subsection (2) of section 3
shall be instituted only in the Special Court
and any prosecution in respect of such offence
pending in any court shall stand transferred
to the Special Court.”
Section 9 made provision ‘or the procedures and powers of
the Special Court. It stated that the Special Court should
in the trial of cases it follow the procedure prescribed by
the Code of Criminal Procedure for the trial of warrant
cases before a Magistrate. It was also provided that the
Special Court would be deemed to be a Court of Session,
having all the powers of such a court. Section 10 provided
that an appeal would lie from any judgment decree, sentence
or order, not being an interlocutory order, of the Special
Court to the Supreme Court, both on facts and on law. By
reason of Section 11(1), the Special Court could make such
order as it deemed fit directing the Custodian in the matter
of disposal of property under attachment. Section 11(2) set
out the order in which the liabilities of the persons
notified had to be discharged. Section 13 stated that the
provisions of the Special Court Act would have effect not-
withstanding anything inconsistent therewith contained in
any other law for the time being in force, or in any
instrument having effect by virtue of any law, or in any
decree or order of any court, tribunal or other authority.
By reason of Section 15 the Special Court (Trial of Offences
Relating to Transactions in Securities) Ordinance, 1992,
which preceded the Special Court Act, was repealed.
5. The Special Court (Trial of Offences Relating to
Transactions in Securities) Amendment Ordinance, 1994, was
brought into effect on 25th January, 1994. The provision
thereof which is most relevant for our purpose is Section 9-
A. It reads thus :
“9A. – Jurisdiction, powers, authority and
procedure of Special Court in civil matters –
(1) On and from the commencement of the
Special Court (Trial Offences Relating to
Transactions in Securities) Amendment
Ordinance, 1994, the Special Court shal
l
exercise all such jurisdiction, powers and
authority as were exercisable, immediately
before such commencement, by any civil court
in relation to any matter of claim –
(a)relation to any property standing attached
under subsection (3) of section 3;
(b)arising out of transactions in securities
entered into after the 1st day of April 1991
and on or before the 6th day of June, 1992, in
which a person notified under subsection (2)
of section 3 is involved as a party, broker.
intermediary or in any other manner;
(2)Every suit, claim or other legal pro-
ceedings (other than on appeal) pending before
any court immediately before the
commencement of the Special Court (Trial of
Offences Relating to Transactions in
Securities) Amendment Ordinance, 1994,
48
being a suit claim or proceeding, the cause of
action whereon it is based is such that it
would have been, if it had arisen after such
commencement, within the jurisdiction of the
Special Court under sub-section (1). shall
stand transferred on such commencement to the
Special Court and the Special Court may, on
receipt of the records of such suit, claim or
other legal proceeding, proceed to deal with
it, so far as may be, in the same manner as a
suit, claim or legal proceeding from the stage
which was reached before such transfer or from
any earlier stage of de novo as the Special
Court may deem fit.
(3)On and from the commencement of the Special
Court (Trial or Offences Relating to
Transactions in Securities) Amendment
Ordinance, 1994, no court other than the
Special Court shall have or be entitled to
exercise, any jurisdiction power or authority
in relation to any matter of claim referred to
in subsection (1).
(4) While dealing with cases relating to any matter
or claim under this section,the Special
Court shall not be bound by the procedure
laid down by the Code of Civil Procedure, 1908
(5 of 1908), but shall be guided by the
principles of natural justice, and subject t
o
the other provisions of this Act and of any
rules, the Special Court shall have the power
to regulate its own procedure.
(5) Without prejudice to the other power
conferred under this Act, the Special Court
shall have, for the purposes of discharging
its functions under this section, the powers
as are vested in a civil court under the Code
of Civil Procedure, 1908 (5 of 1908), while
trying a suit, in respect of the following
matters, namely :
(a) summoning and enforcing the attendance
of any person and examining him an oath;
(b)requiring the discovery and production of
documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of the
sections 123 and 124 of the Indian Evidence
Act, 1872, requisitioning any public record or
document or copy of such record or document
from any office;
(e) issuing commissions for the examination
or witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a case for default or
deciding it ex parte,
(h) setting aside any order of dismissal of
any case for default or any order passed by it
exparte and
(i) any other matter which may be prescribed
by the Central Government under sub-section
(1) of section 14.”
The Amendment Ordinance also introduced Section 9B. It
invested the Special Court with the jurisdiction and powers
of a court conferred under the Arbitration Act, 1940, to
decide any question forming the subject matter of a
reference relating to any matter or claim mentioned in
Section 9A(1). Every suit or other proceeding (other than
an appeal) in relation to any matter or claim referred to in
Section 9A(1) pending before any court and governed by the
Arbitration Act stood transferred to the Special Court on
the date of commencement of the Amendment Ordinance.
6. An Act replaced the Amendment Ordinance. The Statement
of Objects and Reasons thereof said.
“Under the provisions of the Special Court.
(Trial of Offences Relating to Transactions in
Securities) Act, 1992, a Special Court was set
up at Bombay and a Custodian was appointed to
deal With the situation arising out of the
large scale irregularities and malpractices
which were noticed in the securities
transactions of banks, to ensure the speedy
trial of the offenders, to recover properties
of the offenders With a view to prevent
diversion of such properties by the persons
responsible for these offences. 2. During the
course of the trial of these cases, the
jurisdiction of the Special Court,
particularly in matters of civil claims, was
being challenged for %%,ant of specific pro-
visions in the Act. The Special Court,
therefore, needed to be conferred with civil
jurisdiction. For the said purpose, the
Special Court (Trial) of Offences Relating to
Transactions in Securities) Amendment
Ordinance, 1994, was promulgated by the
President on the 25th January, 1994………
Analysis of Section 9A.
7.By reason of sub-section (1) of Section 9-A on and from
the date of commencement of the Amendment Ordinance the
Special Court exercises all such jurisdiction, powers and
authority as were exercisable by any civil court in relation
to any matter or claim (a) relating to any property standing
attached and (b) arising out of transactions in securities
entered into between the stated dates in which a notified
person was in any manner involved. By reason of sub-section
(2) any suit, claim or other legal proceeding (other than an
appeal) pending before any court immediately before the
commencement of the Amendment Ordinance, being a suit or
proceedings the cause of action whereof was such that it
would have, if it had arisen after the commencement of the
Amendment Ordinance, been within the jurisdiction of the
Special Court, stands transferred to the Special Court. By
reason of subsection (3), on and from the commencement of
the Amendment Ordinance no court other than the Special
Court may exercise any jurisdiction, powers or authority in
relation to any matter of claim referred to in sub-section
(1).
8.Sub-Section (1) of Section 9A empowers the Special Court
to exercise the jurisdiction, powers and authority
exercisable by a civil court. It so empowers the Special
Court in relation to any matter or claim, inter alia, that
arises out of transactions in securities entered into
between the stated dates in which a notified person is
involved. The words ‘civil court’ are used in the context
of the jurisdiction, powers and authority that the Special
Court may exercise. The Special Court is empowered to
exercise such jurisdiction, powers or authority in relation
to the matters or claims therein specified. These matters
or claims include those arising out of transactions in
securities entered into between the stated dates in which a
notified person is involved. Sub-section (2) of Section 9A
deals with the transfer of certain suit% claims or other
legal proceedings (other than an appeal) to the Special
Court. Every suit, claim or other legal proceeding pending
before any court the cause of action whereof is such that,
had it arisen after the commencement of the Amendment
Ordinance, the suit, claim or other legal proceeding would
have had to be filed before the Special Court, stands
transferred to the Special Court. Every suit, claim or
other legal proceeding pending before any court the cause of
action whereof arises out of transactions in securities
entered into between the stated dates
50
in which a notified person is involved would, therefore, if
it is pending before any court on the date on which the
Amendment Ordinance came into force, stand transferred to
the Special Court. By reason of sub-section (3) of Section
9A, on and after the commencement of the Amendment
Ordinance, no court other than the Special Court may
exercise any jurisdiction, powers or authority in relation
to any matter or claim referred to in sub-section (1), that
is to say, in relation to any matter or claim, inter alia,
arising out of transactions in securities entered into be-
tween the stated dates in which a notified person is
involved’.
9. A “court” other than the Special Court is debarred,
by reason of sub-section (3) of Section 9A, from
exercising any jurisdiction, powers or authority, after the
commencement of the Amendment Ordinance, in relation to any
matter or claim arising out of transactions in securities
entered into between the stated dates in which a notified
person is involved. Sub-section (2) of Section 9A also
speaks of a ‘court’; a proceeding before a court, the cause
of action of which arises out of a transaction in securities
entered into between the stated dates in which a notified
person is involved, stands transferred to the Special Court.
The question, in these circumstances, is whether the use of
the words ‘civil court’ in subsection (1) excludes the
application of Section 9 A to the CLB?
10. Sub-section (1) of Section 9-A is divisible into two
parts. By the first part, the Special Court is empowered to
exercise, on and from the commencement of the Amendment
Ordinance, all such jurisdiction, powers and authority as
were exercisable before such commencement by any civil
court. By the second part, the Special Court is empowered
to exercise such jurisdiction, powers or authority in regard
to the matters or claims thereon specified, which include
matters or claims arising out of transactions in securities
entered into between the stated dates in which a notified
person is involved. So read, the Special Court has the
jurisdiction, powers and authority of a civil court to
exercise the same in regard to matters or claims arising out
of transactions in securities entered into between the
stated dates in which a notified person is involved. Sub-
section (1) of Section 9A, therefore, invests the Special
Court with the jurisdiction, powers and authority necessary
for the purposes of entertaining matters or claims of the
nature specified therein. Sub-section (2) provides for the
transfer of such matters or claims pending in any court to
the Special Court on the commencement of the Amendment
Ordinance. And sub-section (3) expressly debars any court
other than the Special Court from exercising any
jurisdiction, powers or authority in relation to such
matters or claims.
11. The question to pose, therefore, is: is the CLB a court.
If it is, it is divested of the jurisdiction, powers and
authority to entertain matters or claims arising out of
transactions in securities entered into between the stated
dates in which a notified person is involved, by reason of
sub-section (3); and, by reason of sub-section (2), such
matters or claims pending before it on the commencement of
the Amendment Ordinance stand transferred to the Special
Court.
12. While on Section 9A. it must also be noted that sub-
section (2) thereof mandates transfer to the Special Court
of “every suit,
51
claim or other legal proceedings (other than an appeal)”
which is pending before any court on the commencement of the
Amendment Ordinance in which the cause of action, inter
alia, arises out of a transaction in securities entered into
between the stated dates in which a notified_person is
involved. It is, therefore, the proceeding in the court of
first instance that stands transferred. If the court of
first instance has finally disposed of the proceeding and
its order thereon is the subject of an appeal, the appeal
does not stand transferred.
Section III of the Companies Act.
13. Section III of the Companies 1 Act, 1956, with effect
from 31st May 1991, reads thus
“Power to refuse registration and appeal
against refusal – (1) If a company refuses,
whether in pursuance of any power of the
company under its articles or otherwise, to
register the transfer of, or the transmission
by operation of law of the right to, any
shares or interest of a member in, or
debentures of, the company, it shall, within
two months from the date on which the
instrument of transfer, or the intimation of
such transmission, as the case may be, was
delivered to the company, send notice of the
refusal to the transferee and the transferor
or to the person giving intimation of such
transmission, as the case may be, giving
reasons for such refusal.
(2) The transferor or transferee, or the
person who gave intimation of the transmission
by operation of law, as the case may be, may
appeal to the Company Law Board against any
refusal of the company to register the
transfer or transmission, or against any
failure on its part within the period referred
to in sub-section (1), either to register the
transfer or transmission or to send notice of
its refusal to register the same.
(3)An appeal under sub-section (2) shall be
made within two months of the receipt of the
notice of such refusal or, where no notice has
been sent by the company, within four months
from the date the intimation of transmission,
as the case may be, was delivered to the
company.
(4) If –
(a) the name of any person –
(i) is without sufficient cause, entered in
the register of members of a company or
(ii) after having been entered in the reg-
ister, is, without sufficient cause, omitte
d
therefrom; or
(b) default is made, or unnecessary delay
takes place, in entering in the register the
fact of any person having become, or ceased to
be, a member [including a refusal under
subsection (1)]
the person aggrieved, or any member of the
company, or the company, may apply to the
Company Law Board for rectification of the
register.
(5) The Company Law Board, while dealing
with an appeal preferred under subsection (2)
or an application made under subsection (4)
may, after hearing the parties, either dismiss
the appeal or reject the application, or by
order –
(a) direct that the transfer or transmission
shall be registered by the company and the
company shall comply with such order within
ten days of the receipt of the order;or
(b) direct rectification of the register and
also direct the company to pay damages, if
any, sustained by any party aggrieved.
52
(6) The Company Law Board, while acting
under sub-section (5), may, at its discretion,
make –
(a)such interim orders, including any orders as to
injunction or stay, as it may deem fit and just;
(b) such orders as to costs as it thinks fit; and
(c) incidental or consequential orders re-
garding payment of dividend or the allotment
of bonus or rights shares.
(7) On any application under this section. the
Company Law Board –
(a)may decide question relating to the title
of any person who is a party to The
application to have his name entered in, or
omitted from, the register;
(b)generally, may decide any question which it
is necessary or expedient to decide in
connection with the application for
rectification.
(8) The provisions of subsections (4) to
(7)shall apply in relation to the
rectification of the resister of debenture-
holders as they apply in relation to the
rectification of the register of members.
(9) If default is made in giving effect to
the orders of the Company Law Board under this
section, the company and every officer of the
company who is in default shall be punishable
with fine which may extend to one thousand
rupees and with a further fine which may
extend to one hundred rupees for every day
after the first day after which the default
continues
(10) Every appeal or application to the
Company Law Board under sub-section
(2) or sub-section (4) shall be made by a
petition in writing and shall be accompanied
by such fee as may be prescribed.
(11) In the case of a private company which
is not a subsidiary of a public company, where
the right to any shares or interest of a
member in, or debentures of, the company -is
transmitted by a sale thereof held by a Court
or other public authority, the provisions of
sub-section (4) to (7) shall apply as if the
company were a public company:
Provided that the Company Law Board may, in
lieu of an order under sub-section (5), pass
an order directing the company to register the
transmission of the right unless any member or
members of the company specified in the order
acquire the right aforesaid within such time
as may be allowed for the purpose by the
order, on payment to the purchaser of the
price paid by him therefor or such other sum
as the Company Law Board may determine to be a
reasonable compensation for the right in all
the circumstances of the case.
(12) If default is made in complying with any
of the provisions of this section, die compan
y
and every officer of the company who is in
default, shall be punishable with fine which
may extend to fifty rupees for every day
during which the default continues.
(13) Nothing in this section and section
108,109 or 110 shall prejudice any power of a
private company under its articles to enforce
the restrictions contained therein against the
right to transfer the shares of such company.
14.Section III, as set out above, was incorporated in the
Companies Act subsequent to the report of a committee ap-
pointed to consider amendments to the
53
Companies Act, The Sachar Committee, as it came to be
called, said :
“Under the existing law, there are two
remedies open to an aggrieved person to file
an appeal under section 111, or to apply to
the Court for rectification of the share
register under section 15 5. We-think that
these two remedies should now be assimilated
and provision be made (at one place) for a
person aggrieved (including any person
aggrieved by a refusal of the Board of
Directors to register a transfer or
transmission of shares) to apply to the
Company Law Board – as proposed to be
constituted – for rectification of the share
register on any of the grounds mentioned in
sub-clause (a) or (b) of sub-section (1) of
the present section 155.
Our proposals are –
Accordingly, we would recommend as follows:
Sections III and 155 should be assimilated
into a single statutory provision.”
15.Section 155, as it read before 31st May, 1991, entitled a
person aggrieved or any member of a company or a company to
apply to the court for rectification of the company’s
register of members if the name of any. person was, without
sufficient cause, entered in it or, after having been
entered in it, was, without sufficient cause, omitted
therefrom or default was made or unnecessary delay took
place in entering on it the fact of any person having
become, or ceased to be, a member. The court ‘was entitled
to order rectification of the register and to direct the
company to pay the damages, if any, sustained by a party
aggrieved. The court was entitled to decide any question
relating to the title of any person who was a party to the
application to have his name entered in or omitted from the
register. An appeal from the order of the court was
provided for.
16.It will be seen that the CLB now exercises the powers
that were exercisable by the court under Section 155. It is
entitled to direct rectification of the register and the
payment of damages by the company. It is entitled to decide
any question relating to the title of any person who is a
party to the application to have his name entered in or
omitted from the register and to decide any question which
it is necessary or expedient to decide in this connection.
An appeal to the High Court against any decision or order of
the CLB on a question of law is available to any person
aggrieved, thereby under the provisions of Section 105.
17.Whereas sub-sections (2) and (3) of Section 111 term
the pleading that the person aggrieved has to file before
the CLB an ‘appeal’, sub-section (4) requires the person
aggrieved to apply, sub-section (5) speaks of it as an
‘appeal’ or an ‘application’, sub-section (7) as an
‘application’ and sub-section (10) as an “appeal or ap-
plication”, which shall be made “by a petition in writing”.
The words “appeal” and “application” in the context of the
provisions of Section III have the same meaning. Plainly,
it is an application that has to be made.
18.The powers under Section 155 were exercised by a civil
court. Reference may be made to the definition of “court”
in the Companies Act. Section 2 (11) defines “court” to
mean, with respect to any matter relating to that company.
“District Court” is also defined. The definition
54
thereof in Section 2(14) is that it is the principal civil
court of original jurisdiction in a district, but does not
include a High Court in the exercise of its ordinary
original civil jurisdiction. Section IO deals with the
jurisdiction of courts and it reads thus:
“Jurisdiction of Courts – (1) The Court having
jurisdiction under this Act shall be –
(a) the High Court having jurisdiction in
relation to the place at which the registere
d
office of the company concerned is situate,
except to the extent to which jurisdiction has
been conferred on any District Court or
District Courts subordinate to that High Court
in pursuance of subsection (2); and
(b) Where jurisdiction has been so con-
ferred, the District Court in regard to mat-
ters falling within the scope of the juris-
diction conferred, in respect of companies
having their registered offices in the
district.
(2) The Central Government may, by
notification in the Official Gazette and
subject to such restrictions, limitations and
conditions as it thinks fit empower any
District Court to exercise all or any of the
jurisdiction conferred by this Act upon the
Court, not being the jurisdiction conferred –
(a) in respect of companies generally, by
sections 237, 391, 394, 395 and 397 to 407,
both inclusive;
(b) in respect of companies with a paid up
share capital of not less than one lakh of
rupees by Part VII (sections 425 to 560) and
the other provisions of this Act relating to
the winding up of companies.
(3) For the purposes of jurisdiction to
wind-up companies, the expression “registered
off ice” means the place which has longest
been the registered office of the company
during the six months immediately preceding
the presentation of the petition for winding
up.
19.The provisions of Section 10-E of the Companies Act, as
they were -amended with effect from 31st May, 199 1, read
thus:
“S.10-E. Constitution of Board of Company Law
Administration – (1) As soon as may be after
the commencement of the Companies (Amendment)
Act, 1988, the Central Government shall, by
notification in the Official Gazette
constitute a Board of Company Law
Administration.
(IA) The Company Law Board shall exercise and
discharge such powers and functions as may b
e
conferred on it, by or under this Act or any
other law, and shall also exercise and
discharge such other powers and functions of
the Central Government under this-Act or any
other law as may be conferred on it by the
Central Government, by notification in the Of-
ficial Gazette under the provisions of this
Act or that other law.
Reference to the provisions of Section 105 has already been
made.
20.It is to be noted that the CLB performs functions which
are administrative, as under Sections 224 and 269, and
curial, as under Section 111.
Contentions.
21.Mr. Salve, learned counsel for the Canara Bank, who was
supported by Mr. J.C. Seth, learned counsel for the Nuclear
Power Corporation, submitted that Section 9-A(1) conferred
upon the Special Court
55
the jurisdiction of a civil court “in the wider sense”, as
including courts exercising powers conferred upon civil
courts. The word ‘civil’ was used in Section 9A(1) to
contrast the provisions thereof with those of Section 9(2),
whereunder the Special Court was given all the powers of a
Court of Session. The jurisdiction of the Special Court,
until the coming into force of the Amendment Ordinance,
under Sections 7,8 and 9 of the Special Court Act was in
respect of criminal matters and the powers of a Court of
Session had, therefore, been conferred upon it. It was
found necessary to confer upon the Special Court the powers
of a civil court to deal with the civil matters set out in
Section 9-A(1). Such an interpretation of Section 9A was in
accord with the legislative intent, which was to exclude
from the jurisdiction of all courts save the Special Court
the matter described in Section 9-A(1). A clear indication
of this was provided by Section 9B by reason of which even
matters in court relating to arbitration proceedings
concerning causes of action arising out of the matters
specified in Section 9-A(1) were confined to the Special
Court. The legislative intent was to place all cases
arising out of such causes of action before the Special
Court so that a court having knowledge of all the cases
would decide all matters provided for in the Special Court
Act. A purposive interpretation ought, therefore, to be
placed upon the provisions of Section 9-A. Emphasis was
laid upon the fact that, by reason of Section II 1(7) of the
Companies Act, the CLB had the power to decide the title of
the securities in question before it; the jurisdiction in
this behalf conflicted with the jurisdiction exclusively
conferred upon the Special Court by Section 9-A.
22.Mr. Nariman, learned counsel for Stanchart, submitted
that the relevant question was whether the CLB was a ‘civil
court’. In his submission it was not. Mr. Nariman drew
attention to the provisions of Section 13 of the Special
Court Act, which stated that the provisions of the Special
Court Act would have effect notwithstanding anything
contained, inter alia, “in any decree or order of any court,
tribunal or other authority”, and emphasised the distinction
made by Parliament between court, tribunal and other
authority. The CLB was not intended to be covered by the
provisions of Section 9-A(1), for those provisions did not
exclude the jurisdiction of a tribunal or authority but only
of a court. Secondly, the jurisdiction of the Special Court
was in regard to matters arising out of transactions in
securities entered into between the stated dates in which a
person notified was involved as a broker, intermediary or in
any other manner. It would be very difficult for an
intending litigant to know whether a person notified had
been involved in a transaction relating to securities which
he had purchased and which were not being registered in his
name, as a broker or intermediary or in any other manner at
any time between the stated dates. It was, therefore,
inappropriate to hold that such a litigant was bound to take
recourse to the law before the Special Court and not before
the CLB under Section 111 of the Companies Act, par-
ticularly when, by reason of the provisions of the latter
provision, he had to move ,within a specified time limit.The
interpretation suggested on behalf of the Canara Bank was
not really a purposive interpretation. Attention was drawn
to the provisions of Section 4 whereunder the Custodian was
entitled, if satisfied after such inquiry as be thought fit
that any contract
56
or agreement entered into between the stated dates in
relation to any property of a person notified under Section
3(2) had been entered into fraudulently or to defeat the
provisions of the Special Court Act, to cancel such contract
or agreement whereupon such property stood attached. Even
if the CLB under the provisions of Section 111 of the
Companies Act made any order ,with regard to any securities,
that order would stand at naught if an order relating to the
same securities was made under Section 4 of the Special
Court Act by reason of the fact that, under Section 13 of
the Special Court Act, the Special Court Act had effect
notwithstanding anything inconsistent therewith contained in
any decree or order of any court, tribunal or other
authority. In any event, an appeal did not stand
transferred to the Special Court under the provisions of
Section 9A(2), and what was filed before the CLB under Sec-
tion III of the Companies Act was an Appeal.
Discussion.
23.As to what are courts and tribunals, the leading decision
is M/s. Harinagar Sugar Mills Ltd. v. Shyam Sundar
Jhunjhuwala and ors., (1962) 2 S.C.R. 33 9, delivered by a
Constitution Bench of this Court. A person who held a large
number of shares in the appellant company transferred two
blocks of the shares to his son and daughter-in-law. The
transferees applied to the company to register the
transfers. Purporting to act under the Articles of
Association of the company, the directors resolved not to
register the transfers. The transferees preferred appeals
under Section 111 of the Companies Act which, as the
provision read at that time, lay to the central Government.
The Central Government set aside the resolution of the
directors and directed the company to register the
transfers, but it did not give any reasons for its decision.
The company obtained special leave to appeal under Article
136 of the Constitution against the decision of the Central
Government. The transferees raised the objection that the
Central Government, exercising powers under Section 111, was
not a tribunal exercising judicial functions and was,
therefore, not subject to the appellate jurisdiction of the
Supreme Court under Article 136. J.C. Shah, J. spoke for
four of his brethren and held that a person aggrieved by the
refusal to register the transfer of shares had two remedies
under the Companies Act, namely, to apply to the court for
rectification of the register under Section 155 or to appeal
against the resolution refusing to register the transfer un-
der Section 111. It was common ground that in the exercise
of power under Section 155, the court had to act judicially;
to adjudicate upon the right exercised by the directors in
the light of the powers conferred upon them by the Articles
of Association. The transferees, however, submitted and
were supported by the Union of India, that the authority of
the Central Government under Section 111, was nevertheless,
purely administrative. In an appeal under Section 111
there was a lis or dispute between the contesting parties
relating to their civil rights, and the Central Government
was invested with the power to determine that dispute
according to law. it had to consider and decide the proposal
and the objections in the light of the evidence and not on
grounds of policy or expediency. The power to order
registration of transfers had to be exercised subject to
limitations similar to those imposed upon the exercise of
the power of the court in a
57
petition under Section 155. Those restrictions also applied
to the exercise of the power by the Central Government. The
Central Government had to decide whether, in exercising
their power, the directors were not acting oppressively,
capriciously or corruptly or in some way mala fide. The
decision had manifestly to stand those objective tests. The
exercise of such authority of rendering a decision upon the
respective contentions by reason of which the rights of the
contesting parties were directly affected was judicial. It
was immaterial that the statute which conferred the power
upon the Central Government did not expressly set out the
extent of the power; the very nature of the jurisdiction
required that it be exercised subject to the limitations
which applied to the court under Section 155. Section III
also provided that in the circumstances specified therein
reasonable compensation could be awarded in lied of the
shares. This compensation, which was to be reasonable, had
to be ascertained by the Central Government, and reasonable
compensation could not be ascertained except by the ap-
plication of some objective standards of what was just
having regard to all the circumstances of the case. The
authority of the Central Government to entertain an appeal
under Section 111 was an investiture of the judicial power
of the State. As the dispute between the parties related to
civil rights and the Companies Act provided for a right of
appeal and made detailed provisions about hearing and
disposal according to law. It was impossible to avoid the
inference that a duty was imposed upon the Central
Government in deciding the appeal to act judicially.
Hideyatullah, J. delivered a separate but concurring
judgement. The said that all tribunals were no courts
though all courts were tribunals
The word “courts” was used to designate those tribunals
which were set up in an organised State for the
administration of justice. By administration of justice was
meant the exercise of the judicial power of the State to
maintain and uphold rights and to punish wrongs. Whenever
there was an infringement of a right or an injury, the
courts were there to restore the ‘ vinculum juris’. When
rights were infringed or invaded, the aggrieved party could
go and commence a ‘querela’ before the ordinary civil
courts. These courts were invested with the judicial power
of the State and their authority was derived from the
Constitution or some Act of legislature constituting them.
Their number was ordinarily fixed and they were ordinarily
permanent and could try any suit or cause within their
jurisdiction. Their numbers might be increased or decreased
but they were almost always permanent and went under the
compendious name of “Courts of Civil Judicature”. There
could be no doubt that the Central Government did not come
within this class. With the growth of civilisation and the
problems of modern life, a large number of administrative
tribunals had come into existence. These tribunals had the
authority of law to pronounce upon valuable rights. They
acted in a judicial manner and even on evidence on oath, but
they were not part of the ordinary courts of civil
judicature. They shared the exercise of the judicial power
of the State but were brought into existence to implement
some administrative policy or to determine controversies
arising out of some administrative law. They were very
similar to courts but were not courts. When the
Constitution spoke of “courts” in Articles 136, 227 and 228
and in Articles 233 to 237 and the Lists, it contemplated
courts of civil judicature but
58
not tribunals other than such courts. ThiS was the reason
for using both the expressions in Articles 134 and 227. By
” courts” was meant courts of civil judicature and by
“tribunals” those bodies or men who were appointed to decide
controversies arising under certain special laws. Among the
powers of the State was included the power to decide such
controversies. This was undoubtedly one of the attributes
of the State and was aptly called the judicial power of the
State. In the exercise of this power, a clear division was
noticeable. Broadly speaking certain special matters went
before tribunals and the residue went before the ordinary
courts of civil judicature. What distinguished them had
never been successfully established, A court in the strict
sense was a tribunal which was a part of the ordinary
hierarchy of courts of civil judicature maintained by the
State under its Constitution to exercise the judicial power
of the State. These courts performed all the judicial
functions of the State except those that were excluded by
law from their jurisdiction. The word “judicial” was itself
capable of two meanings. It might refer to the discharge of
duties exercisable by a judge or by justices in court or to
administrative duties which need not be performed in court
but in respect of which it was necessary to bring to bear a
judicial mind to determine what was fair and just in respect
of the materials under consideration. That an officer was
required to decide matters before him judicially in the
second sense did not make him a court or even a tribunal
because that only established that he was following a
standard of conduct and was free from bias or interest.
Courts and tribunals acted judicially in both senses and in
the term ‘courts’ were included the ordinary and permanent
tribunals and in the term ‘tribunals’ were included all
others which were not so included. The matter would have
been simple if the Companies Act had designated a person or
persons, whether by name or by office, for the purpose of
hearing an appeal under Section 111. It would then have been
clear that though such person or persons were not 1 courts’
in the sense explained, they were clearly tribunals’. The
Companies Act said that an appeal would lie to the Central
Government. The court was, therefore, faced with the
question whether the Central Government could be said to be
a tribunal. The function that the Central Government
performed under the Companies Act and Rules was to hear an
appeal against the action of the directors. For that
purpose a memorandum of appeal setting out the grounds had
to be filed and the company, on notice, was required to make
representations, if any, and so also the other side, and
both sides were allowed to tender evidence to support their
representations. The Central Government by the order then
directed that the shares be registered or need not be
registered. The Central Government was also empowered to
include in its orders directions as to payment of costs or
otherwise. The function of the Central Government was
curial and not executive. There was provision for a hearing
and a decision on evidence, and that was indubitably a
curial function. In its functions the Central Government
often reached decisions but all its decisions could not be
regarded as those. of a tribunal. Resolutions of Government
might affect rights of parties and yet they might not be in
the exercise of judicial power. Resolutions of Government
might be amenable to writs under Articles 32 and 226 in
appropriate cases but might not he subject to a direct
appeal under Article 136 as
59
the decisions of a tribunal. The position, however, changed
when Government embarked upon curial functions and proceeded
to exercise judicial power and decide disputes. In these
circumstances, it was legitimate to regard the officer who
dealt with the matter and even Government itself as a
tribunal. The word “tribunal” was a word of wide import and
the words “court” and “tribunal” embraced within them the
exercise of judicial power in all its forms. The decision
of the Central Government thus fell within the powers of the
Supreme Court under Article 136.
24.In Kihoto Hollohan v. Zachillhu and ors. (1992) Suppl 2
S.C.C. 65 1, the observations in the case of Harinagar Sugar
Mills Ltd. v.Shyam Sunder Jhunjhunwala andors. (ibid) were
quoted with approval and it was said that where there was a
lis – an affirmation by one party and denial by another, the
dispute involved the rights and obligations of the parties
to it and the authority was called upon to decide it, there
was an exercise of judicial power. That authority was
called a tribunal if it did not have all the trappings of a
court.
25.In the case of Harinagar Sugar Mills Ltd. v. Shyam Sunder
Jhunjjunwala and Ors. this court was called upon to decide
whether an order of the Central Government under Section 111
of the Companies Act, as it then read, was appealable under
Article 136 of the Constitution. Article 136 empowers this
court to grant special leave to appeal from any judgment,
decree determination, sentence or order in any cause or
matter passed or made by “any court or tribunal” in the
territory of India. The connotation of the words “court”
and “tribunal” was determined in the judgment in the context
of Article 136. The argument was that the Central
Government, acting under Section 111 of the Companies Act,
as it then read, was exercising administrative authority.
The court held that it was exercising judicial authority.
The majority judgment relied upon the provisions of Section
III for so holding. Hidayatullah, J., concurring held that
all tribunals were not courts though all courts were
tribunals. The word “courts” was used to designate the
tribunals that a State established to administer justice.
They were fixed and permanent and could try any suit or
cause within their jurisdiction. They went under the
compendious name of “Courts” of Civil Judicature”. A large
number of administrative tribunals had come into existence
with the growth of civilisation and the problems of modem
life. They acted in a judicial manner but they were not
part of the ordinary courts of civil judicature. What
distinguished them had never been successfully established.
When the Constitution spoke of “courts” in Article 136 and
other Articles, it contemplated courts of civil judicature
but not tribunals other than such courts. This was the
reason both expressions were used in Articles 136 and 226.
The judgment is, therefore, determinative in deciding
whether a tribunal is subject to the jurisdiction of this
court under Article 136 or of the High Court under Article
227, but it does not hold that a “Court” is only a court of
civil judicature in the ordinary hierarchy of courts.
26.In our view, the word “,court” must be -read in the
context in which it is used in a statute. It is
permissible, given the context, to read it as comprehending
the courts of civil judicature and courts or
60
some tribunals exercising curial, or judicial, powers. In
the context in which the word “court” is used in Section 9A
of the Special Court Act, it is intended to encompass all
curial or judicial bodies which have the jurisdiction to
decide matters or claims, inter alia, arising out of
transactions in securities entered into between the stated
dates in which a person notified is involved.
27.The occasion for enacting the Special Court Act must not
be lost sight of. The Statement of Objects and Reasons of
the Bill to replace the Amendment Ordinance has already been
quoted. A Joint Parliamentary Committee was constituted to
investigate what the Statement of Objects and Reasons called
“the large scale irregularities and malpractices which were
noticed in the securities transactions of banks”. This is
what the Joint Parliamentary Committee said in its report
about the “scam” :
scam is basically a deliberate and criminal
misuse of Public funds through various types
of securities transactions with the aim of
illegally siphoning of funds of banks and PSUs
to select brokers for speculative returns.
The latest irregularities in the securities
and banking transactions, are manifestations
of this chronic disorder since they involved
not only the Banks but also the stock market,
financial institutions, PSU, the central bank
of the country and even the Ministry of Fi-
nance, other economic ministries in varying
degrees. The most unfortunate aspect has been
the emergence of a culture of non-
accountability which permitted all sections of
the Government and Banking system over the 3
Years. The state of the country’s system of
governance, the persistence of non-adherence
to rules, regulations and guidelines, the
alarming decay over time in the banking
systems has been fully exposed. These grave
and numerous irregularities persisted for so
long that eventually it was not the observance
of regulations but their breach that came to
be regarded and defended as “market practice”.
Through all these years the ability of the
concerned authorities to effectively address
themselves to the problems has been tested and
found wanting. The consequence of these
irregularities in securities and banking
transactions are both financial and moral.
During the period from July, 1991 to May, 1992
the most glaring proof of the nexus between
the irregularities in banks and the over-
heating of stock market which came to light is
explained by the graphic representations of
the BSE Index and the fact that there was a
sharp increase in securities transactions
during the corresponding period of the banks
involved in serious irregularities related
with the scam. What is more apparent is the
systematic and deliberate abuse of the system
by certain unscrupulous elements. It is
abundantly clear that the scam was the result
of failure to check irregularities in the
banking system and also liberalization without
adequate safeguards. There is also some
evidence of collusion of big industrial houses
playing an important role. It is because o
f
these elements that the economy of the country
had to suffer and while some gained thousands
of crores, millions of investors lost their
savings. The criminality of the pepetrators
of the scam becomes all the more despicable as
it was during this period that the country was
passing through most trying times,
economically and financially. An observation
that the Committee has been constrained to
make at a number of places in the succeeding
chapters is that for all these not many have
yet been identified and effectively punished.

28. Having regard to the enormity of the
61
“scam” and its vast ramifications, Parliament thought it was
necessary that all the matters of claims arising out of
transactions in securities entered into between the stated
dates in which a person notified was involved should be
brought before and tried by the same forum. That forum had
been invested with the jurisdiction to try persons accused
of offences relating to transactions in securities entered
into between the stated dates. It was also required to give
directions to the Custodian in regard to property belonging
to persons notified which stood attached under the
provisions of the Special Court Act. The object of amending
the Special Court Act invest the Special Court with the
power and authority to decide civil claims arising out of
transactions in securities entered into between the stated
dates in which a person notified was involved has already
been stated. In these circumstances, it is proper to
attribute to the word “court” in Section 9A(1) of the
Special Court Act, not the narrower meaning of a court of
civil judicature which is part of the ordinary hierarchy of
courts, but the broader meaning of a curial body, a body
acting judicially to deal with matters and claims arising
out of transactions in securities entered into between the
stated dates in which a person notified is involved. An
interpretation that suppresses the mischief and advances the
remedy must, plainly, be given.
29.In Halsbury’s Laws of England (4th edition, Volume 10,
paragraphs 701 and 702), this is observed :
701. Meaning of “court”. Originally the term
“court” meant, among other things, the
Sovereign’s place. It has acquired the
meaning of the place where justice i
s
administered and, further, has come to mean
the persons who exercise judicial functions
under authority derived either directly or
indirectly from the Sovereign. All tribunals,
however, are not courts, in the sense in which
the term is here employed. Courts are
tribunals which exercise jurisdiction over
persons by reason of the sanction of the law,
and not merely by reason of voluntary, sub-
mission to their jurisdiction. Thus, arbi-
trators, committees of clubs and the like,
although they may be tribunals exercising
judicial functions, are not “courts” in this
sense of that term. On the other hand, a
tribunal may be a court in the strict sense of
the term even though the chief part of its
duties is not judicial. Parliament is a
court. Its duties are mainly deliberative and
legislative; the judicial duties are only part
of its functions. A coroner’s court is a true
court although its essential function is
investigation.
“702. What is a court in law. The question
is whether the tribunal is a court, or whether
it is a court of justice for, there are courts
which are not, courts of justice. In
determining whether a tribunal is a judicial
body the facts that it has been appointed by a
non-judicial authority, that it has no power
to administer on oath, that the chairman has a
casting vote, and that third parties have
power to intervene are immaterial, especially
if the statute selling it up prescribe a
penalty for making false statements; elements
to be considered are (1) the requirement for a
public hearing, subject to a power to exclude
the public 1 a proper case, and (2) a
provision that a member of the tribunal shall
not take part in any decision in which he is
personally interested, or unless he has been
present throughout the proceedings.
A tribunal is not necessarily a court in the
strict sense of exercising judicial power
merely because (1), it gives a fund decision;
(2) it hears witnesses on oath;
62
(3) two or more contending parties appear
before it between whom it has to decide: (4)
it gives decisions which affect the rights of
subjects: (5) there is an appeal to a court;
and (6) it is a body to which a matter referre
d
by another body;
Many bodies are not courts even though they
have to decide questions, and in so doing have
to act judicially, in the sense that the
proceedings must be conducted with fairness
and impartiality. Examples are the benchers
of the Inins of Court when considering the
conduct of one of their members, the
disciplinary committee of the General Medical
Council when considering questions affecting
the conduct of a medican man, a trade union
when exercising disciplinary jurisdiction over
its members………
30.These passages, from the earlier edition of Halsbury,were
cited by this court in Thakur Jugal Kishore Sinha v. The
Sitamarhi Central Co-operative Bank Ltd., (1967) 2 SCR 163.
The question there was whether the provisions of the Con-
tempt of Courts Act applied to a Registrar exercising powers
under Section 48 of the Bihar and Orissa Co-operative
Societies Act. It was held that the jurisdiction of the
ordinary civil and revenue courts of the land was ousted in
the case of disputes that fell under Section 48. A
registrar exercising powers under Section 48, therefore,
discharged the duties which would otherwise have fallen on
the ordinary civil and revenue courts. He had not merely
the trappings of a court but in many respects he was given
the same powers as were given to the ordinary civil courts
of the land by the Code of Civil Procedure, including the
power to summon and examine witnesses on oath, the power to
order inspection of documents, to hear the parties after
framing issues, to review his own order and to exercise the
inherent jurisdiction of courts mentioned in Section 151.
In adjudicating a dispute under Section 48 of the Bihar Act,
the Registrar was held to be, “to all intents and purposes a
Court discharging the same functions and duties in the same
manner as a Court of law is expected to do.”
31.Now, under Section 111 of the Companies Act as amended
with effect from 31st May, 1991, the CLB performs the
functions that were therefore performed by courts of civil
judicature under Section 15 5. It is empowered to make
orders directing rectification of the company register, as
to damages, costs and incidental and consequential orders.
It may decide any question relating to the title of any
person who is a party before it to have his name entered
upon the company’s register; and any question which it is
necessary or expedient to decide. It may make interim
orders. Failure to comply with any order visits the company
with a fine. In regard to all these matters it has
exclusive jurisdiction (except under the provisions of the
Special Court Act, which is the issue before us). In
exercising its function under Section 111 the CLR must, and
does, act judicially. Its orders are appealable. The CLR,
further, is a permanent body constituted under a statute.
It is difficult to see how it can be said to be anything
other than a court, particularly for the purposes of Section
9A of the Special Act.
32.We shall assume that a shareholder whose name the company
has refused to enter in its register would be put to some
difficulty in deciding whether he should approach the
Special Court or the CLB, but that is no reason to interpret
the provisions of Section 9A in a manner that would
63
defeat its intendment and adversely affect the public
interest. In any event, the time taken in approaching the
CLB in a matter that should have been filed before the Spe-
cial Court would not be of any consequence for there is no
time limit within which the Special Court has to be ap-
proached; and it is most unlikely that the Special Court
would be approached unless the shareholder were sure that
his claim fell within Section 9A(1).
33.It will be remembered that Mr. Nariman had drawn
attention to the provisions of Section 4 of the Special
Court Act and argued that even if the CIB, under the
provisions of Section III of the Companies Act, made any
order with regard to any securities, that order would stand
at naught if an order relating to the samE securities was
made under Section 4 of the Special Court Act by reason of
the fact that, under Section 13 of the Special Court Act,
order of the Special Court had effect notwithstanding
anything inconsistent therewith contained in any decree or
order of any court, tribunal or other authority. Section
3(2) of the Special Court Act empowers the Custodian, on
being satisfied on information received that any person has
been involved in any offfence relating to transactions in
securities entered into between the stated dates to notify
the name of such person in the Official Gazette. On such
notification, by reason of Section 3(3), the property of the
person notified stands attached. That property, by reason
of Section 3(4), is to be dealt with by the Custodian in
such manner is the Special Court may direct, Section 4
states that if the Custodian is satisfied after such inquiry
as he may think fit that any contract or agreement entered
into fraudulently or to defeat the provisions of the Special
Court Act, he may cancel such contract or agreement
whereupon such property stands attached. The scope, there-
fore, of Section 4 is limited. It applied only in regard to
property that belongs to a person notified. Section 9A(1)
is much wider and it invests the Special Court with.
jurisdiction to entertain matters or claims arising out of
transactions in securities entered into between the stated
dates in which a person notified is involved not only as a
party but also as a broker, intermediary or in any other
manner. The argument based on Section 4 must, therefore,
fail.
34. As has been pointed out, sub-sections(2) and (3) of
Section 111 of the Companies Act term the pleading that the
person aggrieved has to file before the CLE an ‘appeal’,
sub-section (4) requires the person aggrieved to apply, sub-
section (5) speaks of it as an ‘appeal’ or an ‘application’,
subsection (7) as an ‘application ‘ and sub-section (10) as
an ‘appeal or application’ which shall be made by a “pe-
tition in writing”. The words “appeal” and “application” in
the context of the provisions of Section 111 have, therefore
the same meaning and it is, plainly, an original application
that is made. The shareholder does not resort to a superior
court to review the decision of an inferior court or
tribunal. The fact, therefore, that Section 9A(2) of the
Special Court Act speaks of the transfer of ‘every suit’,
claim or other legal proceeding (other than an appeal)” does
not exclude the “application’ or “appeal” made under the
provisions of Section 111 of the Companies Act from the
purview of Section 9A(1) of the Special Court Act.
Conclusion
35. For all these reasons, the appeal must
succeed. Noorder on the transfer petition is now called
for.
36. The appeal is allowed. The judgment and order of the
CLB under appeal is set aside. The application of the
Canara Bank pending before the CLB shall stand transferred
to the Special Court constituted under the provisions of the
Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992.
37. the Transfer Petition is dismissed.
38. There shall be no order as to costs.
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