Getting the nod: Intersection of Companies Act & RERA

BY BODHISATTWA MAJUMDER, FIFTH YEAR STUDENT AT MNLU, MUMBAI

Winding up of companies have been dealt by the company law tribunals jointly under the Companies Act, 1956, (“Former Act”), Companies Act, 2013 (“Act”) and Insolvency and Bankruptcy Code 2016 (“IBC”). In order to avoid jurisdictional disputes and for the speedy disposal of pending proceedings, the Tribunal has been given various powers under the legislations to oust the jurisdiction of other civil courts. One of them being Section 279 of the Act (formerly Section 446 under the former Act) which makes the leave of the tribunal mandatory for commencement/pendency of ‘any suit or legal proceeding’, after passing of an order of winding up or appointment of a liquidator in case of a new suit. However, there have been various instances of conflict between jurisdiction of the Tribunal and other specialised courts. These disputes have been brought due to the conflict between the Companies Act and other specialised legislations of niche subject areas such as Admiralty Law, Insurance Law or other Bankruptcy Laws.

In the same vein, there arises a question of law regarding the requirement of leave of the Tribunal to commence or continue legal proceeding when placed against the authorised brought by the Regulation and Development) Act, 2016 (“RERA”). This article delves in the above question of law in the context of Kuldeep Kaur v. MVL (“Kuldeep Kaur”) where the same issue had been dealt summarily. This article strives to provide detailed analysis on the subject, based on the issues of law which may arise when the appeal is made against the Kuldeep Kaur ruling.

RERA vis-a-vis Companies Act – A Comparative Approach

Under the principles of statutory interpretation, a later statute always abrogates an earlier statute (leges posteriors priores contraries abrogant). However, the exception to this being that a special statue always prevails over a general statute (generalia specialibus non derogant). A specialized act operates in a limited field and its application is over a limited nature, as decided by the legislation while drafting the law. The Parliament while passing a specialized statute devotes it complete consideration over a subject and passes the statute tailor-made for achieving a specific purpose. In cases where there exists a conflict between two specialized legislations, with each having the non-obstante clause to override any other legislation, the conventional method of interpretation cannot be considered. In these cases the Court bases its decision on the consideration of policy and purpose behind the acts needs to be understood along with the language of the legislature.

Time and again it has been argued that the Companies Act also operates in a specific area of law (Company law), and hence should be treated in par with the specialized legislations. However, the case laws have majorly maintained the stance against Companies Act that the Companies Act is an act relating to companies in general, thus being a general law. Be it against the RDDB Act in Allahabad Bank, Negotiable Instruments Act in Indorama Synthetics, or Admiralty Act in Raj Shipping. The RERA Act came into effect on 1st of April, 2016 for the purpose of laying a structure related to real estate sector and protection of consumers by speedy disposal of cases. It contained no provisions as such which provided for seeking leave of company law tribunals under §446 of the Companies Act, 1956. The proceedings under RERA stands in a different footing keeping the interests of homebuyers/promoters which does not allows or requires being influenced by the Companies Act. Hence, it can be reasonably assumed that in all possible scenarios of interpretation that the RERA shall prevail over the Companies Act due to being a later and special legislation.

Existence Of Special Forums Oust Jurisdiction Of Company Court By Necessary Implication

The Legislature may entrust a special tribunal or body with a jurisdiction which includes the jurisdiction to determine whether the preliminary state of facts exists as well as the jurisdiction, on finding that it does exist, to proceed further or to do something more. The Legislature shall have to consider whether there shall be an appeal from the decision of the tribunal as otherwise there will be none. In cases of this nature, the tribunal has jurisdiction to determine all facts including the existence of preliminary facts on which exercise of further jurisdiction depends. In the exercise of the jurisdiction the tribunal may decide facts wrongly or if no appeal is provided therefrom there is no appeal from the exercise of such jurisdiction. By the virtue of Section 79 of the RERA Act, the jurisdiction of all civil courts in respect of matters dealing with the RERA Act has been barred. This exclusion by the virtue of a provision in a statute presents itself as a textbook example of an expressed legislative intent.

Hence, in cases of RERA matters, the jurisdiction of civil courts will be ousted by the RERA Authority by necessary implication. Similar stance was taken in Damji Valji Shah, where the court referred to Section 41 of the LIC Act which provided  that no civil Court shall have jurisdiction to entertain or adjudicate upon any matter which a Tribunal is empowered to decide or determine under that Act. The court held that it is undisputed that the Tribunal had jurisdiction to entertain the application of the Corporation and thereby given the exclusive jurisdiction over this matter.

Section 446 and its influence on RERA: Analysis in context of Kuldeep Kaur Case

In Kuldeep Kaur, the Rajasthan RERA Authority faced the similar question of law when a complaint was filed under Section 31 of RERA. These complaints were filed in a stage where there already been an appointment of the liquidator. The RERA Authority was faced the impediment of leave under Section 446 of the Act, and the matter dealt with the obligation of authorities under RERA.

In order to understand the brief ruling provided in the 7-paged order of the authority, it is essential to understand why the dispute erupts in the first place. The genesis of the dispute arises due to the wide wording of the Section 446, which prohibits any commencement or continuation of any “suit or other legal proceeding” once a winding up order has been passed or a liquidator has been appointed. However, despite the liberal wording of the statute it has been held that this provision should be invoked judiciously and not include every legal proceeding. The courts of law while making an interpretation should decide upon each case at hand keeping the intent of the conflicting legislations and decide which forum will be ‘appropriate’. It must be kept in mind if a later legislation is enacted with an overriding provision, the legislating body drafted the same keeping in mind the previous legislations.

Hence, the courts should refrain from construing a wide ambit and including forums which are not intended to be included. In Kuldeep Kaur, the bench rightly moved with the ruling of Damji Valji Shah, and concurred that as RERA is a later act and a specific one, it will prevail over the Act. The Court opined in this ruling that as the proceedings are pending under the RERA Act, which is a special act in this case. It was emphasised in Kuldeep Kaur that the RERA Act is a special act which has established specific forums for speedy disposal of the matters before it.

Concluding remarks

The Companies Act is general law for companies, and has been classified by judicial rulings when placed in contrast with other legislations. However, even if it is regarded special act for the sake of it along with RERA, the latter act consisting of non obstante clause shall prevail over the former. In Kuldeep Kaur’s case it was rightly observed that RERA Act is a special Act as it was enacted with a special purpose of regulating and promoting the real estate sector, with a specialised forum for the same. Its special nature is also borne out of Section 89 which is a non-obstante clause along with Section 79 of RERA further shows that it is a self-sustained code.

The intention of RERA is to bring the complaints of allottees before the specified Authority to simplify the process, and that is indeed difficult if it is made to seek the leave of the company courts in the first stage. The Rajasthan RERA authority held in clear stance that it shall prevail over all earlier laws as well as general laws including Companies Act 2013. The final nail on the coffin was laid when the Court emphasized that arguendo, it was an older or general law, still, by the virtue of Section 89 would prevail over all general laws such as Companies Act. The ruling of Kuldeep Kaur represents the persisting problem of  conflict of jurisdiction which have arisen frequently due to the improper wording of the section. Despite the enactment of the Code, it is evident that the impediments in swift winding up of companies still remain at large.


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