Companies ActNCLATRulingsTribunal & Appellate

NCLAT states Sections 241-242 of Companies Act, 2013 cannot be invoked for settlement of disputes of a “Producer Company”

Kozihikode Coconut Farmers Producer Company Ltd. vs. Moolath Mannil Sreenivasan

NCLAT sets side order of NCLT; says provisions of Companies Act, 2013 will not apply to Producer Companies as the provisions of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies.

Appellants filed an application raising objection to the maintainability of the Company Petition filed by the Respondents herein pending before NCLT in which the Appellants are the Respondents. But NCLT held it to be maintainable vide an order. Appellants have appealed against the impugned order on the ground that being a Producer Company, it is governed is governed by provisions of Part IX-A of the Companies Act, 1956 (hereinafter referred to as the ‘Act’) only and it being a Body Corporate registered under the Act and not a Company, Section 241 and 242 of Companies Act, 2013 relating to oppression and mismanagement do not apply to the Appellant Company. 

The Respondents sought an order for investigation under Section 213 of the Act alleging fraud, misappropriation, oppression, mismanagement and fabrication of record against the Appellant. 

NCLAT observes that that Chapter IX-A is a complete code as regards ‘Producer Companies’ and lays down self-contained procedure to deal with all relevant aspects in relation to Producer Companies. NCLAT further observes that Section 465 of the Act provides in unambiguous terms that while the Act stands repealed, provisions of Part IX-A shall be applicable mutatis mutandis to a ‘Producer Company’ as if the Act had not been repealed. NCLAT observes that, 

“ ‘Producer Companies’ having been treated as a class apart were not intended to be governed by the Companies Act, 2013 and provisions of Part IX-A of the Act survived despite repealing of the Act.”

 NCLAT finds that the contention of Respondents that the Appellant Company comes within the class of ‘Private Company’ and therefore should comply with the provisions of Companies Act, 2013 governing the ‘Private Companies’, apart from the provisions of Part IX-A of the Act, is fundamentally flawed and cannot be accepted. NCLAT finds that the Respondents plead that the general provisions of the Companies Act, 2013 would apply to the ‘Producer Companies’ as well and such plea ostensibly rests upon the expression ‘mutatis mutandis’ used in Section 465 of the Companies Act, 2013. 

NCLAT relied on the observation made by SC in  ‘Ashok Service Centre & Ors. Vs. State of Orissa’, reported in AIR 1983 SC 394 wherein it was held that

“Extension of an earlier Act mutatis mutandis to a later Act brings in the idea of adaptation but so far only as it is necessary for the purpose, making a change without altering the essential nature of the thing changed, subject of course to express provisions made in the later Act.”

But NCLAT finds such reliance to be misplaced. NCLAT finds that in the present matter,the  Companies Act, 2013 (later Act), expressly provides for keeping intact provisions of Part IX-A of the Act (earlier Act) saving it from repeal and further providing for its retention on the Statute Book until a new legislation is enacted in regard to ‘Producer Companies’ and the matters in relation to Producer Companies continue to be governed by Part IX-A of the Act. Thus, NCLAT concludes that Producer Companies continue to be governed in all respects by Part IX-A of the Act to the entire exclusion of Companies Act, 2013 and this arrangement is to continue until Parliament enacts law to consolidate, amend and modify law relating to Producer Companies.

With regards the nature of reliefs claimed in the Company Petition, NCLAT observes that allegations of oppression and mismanagement in the Company Petition seeking certain reliefs as noticed elsewhere fall within the ambit of a dispute relating to management or business of the company and such dispute being a management dispute is squarely covered by the dispute contemplated under Section 581ZO of the Act. 

Thereafter, NCLAT examines Section 581ZO of the Act and finds that Sub-section 2 specifically provides that if any question arises whether the dispute relates to formation, management or business of the Producer Company, the question shall be referred to the Arbitrator, whose decision thereon shall be final and clearly ousts the jurisdiction of other authorities, be it the Tribunal or a Civil Court, to decide whether the dispute raised is in regard to management of the company. NCLAT thus opines that that apart from the acts resulting in mismanagement and oppression being essentially integral and proximate to management, jurisdiction to decide the question relating to the dispute being with regard to management falls within the domain of Arbitrator with finality being attached to his decision.

NCLAT opines that provisions of Sections 241-242 of the Companies Act, 2013 cannot be invoked for settlement of disputes regarding oppression and mismanagement of a ‘Producer Company’ and such disputes would continue to be resolved through conciliation or arbitration.

NCLAT observes that NCLT has narrowed down the definition of ‘dispute’ for purpose of Section 581ZO by misinterpreting the explanation which only seeks to include certain types of disputes within the ambit of ‘dispute’ as defined in the aforesaid provision

NCLAT states that NCLT has erred in returning a finding that the dispute alleged in the Company Petition does not fall under the explanation of ‘dispute’ thereby usurping the jurisdiction vested in the ‘Arbitrator’ under Section 581ZO (2) of the Act. NCLAT thus, sets aside the impugned order finding it unsustainable.

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