Sale Deed Challenged by Shareholders: Kerala High Court Holds Section 430 of the Companies Act Does Not Bar Civil Suit
Background
In Sathish Kumar v. Govindankutty [2026:KER:78495], the Kerala High Court considered whether the dispute concerning the sale of property belonging to a company was to be decided by the NCLT or the Civil Court. The dispute arose from the sale of the property by the company’s Managing Director, to defendants under Sale Deed No. 2706/2014 of SRO Cherpu.
The plaintiffs, who were shareholders of East India Chits Finance Private Limited, challenged the sale, alleging that the property could not have been sold without the concurrence of the majority shareholders. They further alleged that the sale deed stated that a shareholders’ meeting had been held on 16.08.2014, though no such meeting had taken place, and therefore claimed that the transaction was fraudulent. They sought a declaration that the sale deed was not binding on them or the company.
The defendants resisted the suits and sought their rejection, contending that the dispute concerned the affairs of the company and that the remedy lay before the NCLT. The Commercial Court accepted this objection and held that the plaintiffs’ remedy was before the NCLT. Aggrieved by this order, the plaintiffs approached the Kerala High Court, giving rise to the question whether the dispute concerning the validity and binding nature of the sale deed fell within the jurisdiction of the NCLT or was properly maintainable before the Civil Court.
Issues
- Whether the suits before the Civil Court are barred under Section 430 of the Companies Act, 2013, on the ground that the dispute falls within the jurisdiction of the NCLT under Sections 241 and 242 and whether the NCLT has jurisdiction under Sections 241 and 242 to grant declaratory relief concerning the registered sale deeds.
- Whether the High Court, in these proceedings, could also decide the defendants’ objection that the suits are barred by limitation.
The Court’s Reasoning
On the first issue, the Court examined the scope of Sections 241 and 242 of the Companies Act, 2013, which empower the National Company Law Tribunal (NCLT) to grant relief in cases of oppression and mismanagement in a company. Section 430 bars Civil Courts from entertaining suits or proceedings concerning matters that the NCLT is empowered to determine. Therefore, the main question was whether the relief sought in the present suits fell within the jurisdiction of the NCLT under Sections 241 and 242. The Court held that the NCLT, being a statutory tribunal, can exercise only the powers conferred on it by the statute.
Applying this to the present case, although the plaintiffs alleged that the first defendant had sold the property without the concurrence of the majority shareholders and that the transaction was fraudulent, the specific relief they sought was a declaration that the sale deed registered as No. 2706 of 2014 was not binding on the plaintiffs and the 8th defendant Company/shareholders. The Court observed that, under Sections 241 and 242 of the Companies Act, it was difficult to conclude that the NCLT had the power to declare a registered document void as against the Company. Therefore, the civil court’s jurisdiction could not be treated as barred under Section 430 of the Companies Act.
The Court further observed that the power to grant declaratory relief lies with the Civil Court under Section 9 of the Code of Civil Procedure (CPC), unless its jurisdiction is expressly or impliedly barred by law. Since the NCLT was not empowered under Sections 241 and 242 to declare the registered sale deed void and not binding on the company, the bar under Section 430 could not be invoked to prevent the Civil Court from hearing the suits. The Court also relied on Saju George v. Saji Varghese [2026 (5) KHC 188], which recognised that the jurisdiction of a specialised tribunal is limited to the powers conferred on it by the relevant statute.
On the second issue, the Court declined to decide the question of limitation. The Commercial Court had rejected the suits on the ground that the NCLT had jurisdiction and had not considered whether the suits were barred by limitation. Therefore, the High Court held that it would be wholly impermissible to decide the limitation issue for the first time while exercising its jurisdiction under Article 227 of the Constitution of India. However, the defendants were given the liberty to raise the objection of limitation before the Civil Court at the appropriate stage.
Accordingly, the impugned orders were set aside, and the suits were restored to the file of the Commercial Court to proceed in accordance with law.
Significance for Practice
The judgment clarifies that Section 430 of the Companies Act, 2013 ousts the Civil Court’s jurisdiction only for matters the NCLT is actually empowered to decide. A tribunal can exercise only the powers given to it by law, and the Civil Court’s jurisdiction cannot be excluded without a proper legal basis. Where the relief sought, such as a declaration against a registered document, it is outside the NCLT’s powers,and the Civil Court remains the proper forum, even if the dispute involves a company and its shareholders.
