The jurisdiction of the Civil Court is not ousted by Section 430 of the Companies Act, 2013, in cases where the dispute involves allegations of fraud and breach of fiduciary duty by an auditor of a company.

JUDGMENT :

(Soumen Sen, J.) :

1. The appeal is arising out of a judgment and order dated 5th December, 2022 passed in connection with an application filed by the appellant for rejection of plaint on the ground that the dispute raised in the plaint cannot be decided by a Civil Court.

2. The appellant contended before the learned Single Judge that the disputes in the plaint, falls within the exclusive jurisdiction of the National Company Law Tribunal (in short ‘NCLT’). Accordingly, the suit is not maintainable.

3. The learned Single Judge decided the issue against the appellant, hence, this appeal.

4. Before we advert to the submissions made it is necessary to consider the averments made in the plaint.

5. The plaintiff has filed a suit for declaration and injunction.

6. The defendant no.4 was incorporated as a closely held family company by one Sambhunath Shaw since deceased (in short ‘Shambhunath’) along with his wife and sister-in-law.

7. Sambhunath was in full control of the company and he used to run, manage and control the said respondent no.4.

8. Defendant no. 1 is a chartered accountant by profession. The defendant nos. 2 and 3 are the family companies of the defendant no.1. The entire shareholding of the defendant nos.2 and 3 are held by the defendant no.1 by himself and through his family members.

9. Sambhunath engaged defendant no.1 for rendering professional service and appointed him as the auditor of the defendant no.4.

10. Sambhunath reposed complete faith in the defendant no.1 regarding the affairs of the defendant no.4 except the business actually carried on by the defendant no.4. The complete faith and trust on the defendant no.1 by Sambhunath continued till 2009 when Sambhunath for the first time detected diverse financial irregularities committed by the defendant no.1. Ultimately, defendant no.1 resigned as auditor of the defendant no.4 on 30th April, 2010.

11. In the mean time and from time to time, authorized and paid up share capital of the defendant no.4 was increased. The plaintiff alleged that such increase during the aforesaid period in the share capital of the defendant no.4 was made by Sambhunath at the instance of the defendant no.1.

12. The plaintiff became a shareholder of the defendant no.4 on 30th March, 2002 when Sambhunath had caused the defendant no.4 to issue 500 shares in favour of the plaintiff. The shareholding of the plaintiff in the defendant no.4 had increased thereafter from time to time and ultimately, the plaintiff became the holder of the 46,500 fully paid up equity shares of the defendant no.4.

13. On 12th March, 2015 the plaintiff was made a director of the defendant no.4. The plaintiff remained a director for a very short time and was removed on 23rd December, 2015.

14. Shambhunath died on July 31, 2018 and he was survived by his widow and two sons. The plaintiff is the younger son. On 14th August, 2018 the plaintiff was inducted as a director of defendant no.4. along with other directors.

15. After his induction the plaintiff discovered that the defendant nos.2 and 3 who did not have any connection with the Jaiswal family, jointly hold about 1,70,000 shares equivalent to 32.69 per cent of the whole share capital of the defendant no.4 company. The said defendant nos.2 and 3 are not connected with the family of Sambhunath in any manner whatsoever.

16. On a further enquiry, it was revealed that the defendant no.1 personally holds 4,120 number of equity shares out of 2,94,500 paid up shares of the defendant no.2 and total 80,100 number of equity shares in the defendant no.2 either through his family members or through HUF of which he is the Karta and also through one PCG Properties Private Limited. These facts came to the notice of the plaintiff on 15th July, 2019 after going through the notices of the annual general meeting of the defendant nos.2 and 3 along with the Balance-sheet, auditor’s report, and Annual Returns of the said company dated 31st March, 2018. A further perusal of th