Companies Act Provides Complete Legal Mechanism; Parties Must Approach NCLT, Other Competent Forums Instead of Invoking Article 226, Court Holds
Srinagar, July 28 : The High Court of Jammu & Kashmir and Ladakh has ruled that disputes involving alleged fraudulent transfer of shares, removal of directors and internal management of private companies are essentially matters of corporate law and cannot ordinarily be adjudicated through writ petitions under Article 226 of the Constitution.
Delivering the judgment, Justice Sanjay Parihar observed that the Companies Act, 2013 provides a comprehensive statutory framework and specialised adjudicatory forums for resolving disputes relating to the affairs and management of companies. Therefore, parties should ordinarily pursue remedies available under the Act instead of invoking the extraordinary writ jurisdiction of the High Court.
The Court observed that merely alleging inaction by official respondents does not convert what is fundamentally a private corporate dispute into a matter involving public law requiring intervention under Article 226.
Justice Parihar further held that allegations concerning fraudulent transfer of shares, misuse of digital signatures, unlawful removal from directorship and alteration in the constitution of a company involve disputed questions of fact that require detailed examination of evidence, making them unsuitable for adjudication in writ proceedings.
The Court noted that issues such as the authenticity of digital signatures, consent for transfer of shares, execution of statutory forms and the evidentiary value of documents must be examined by competent authorities under the Companies Act.
Highlighting the powers of the National Company Law Tribunal (NCLT), the Court observed that Section 213 of the Companies Act empowers the Tribunal to order an investigation into the affairs of a company where circumstances indicate fraud, misconduct or unlawful conduct by those managing the company.
The High Court also cautioned that directing an investigation into the affairs of a company is a serious matter that may adversely affect its business and reputation and, therefore, cannot be ordered casually without following the statutory procedure prescribed under the Companies Act.
Justice Parihar reiterated that the Companies Act provides an effective and comprehensive mechanism for addressing grievances relating to shareholding, directorship and corporate management through specialised forums.
The Court clarified that while the existence of an alternative remedy is not an absolute bar to exercising writ jurisdiction, the High Court should ordinarily decline to interfere where disputes involve private rights and disputed questions of fact.
The observations were made while dismissing a writ petition filed by a former director and shareholder of a private company, who had alleged fraudulent transfer of his shares and violation of industrial policy conditions. However, the Court granted liberty to the petitioner to pursue appropriate remedies before the competent authorities under the Companies Act. (KNC)
