High Court of Calcutta rejects plaint under Order 7, rule 11 - misjoinder of causes of action

Shyama Sharan Bhalotia Versus Essem Enterprises P. Ltd.

Shyama Sharan Bhalotia Versus Essem Enterprises P. Ltd. - [2012] 171 COMP. CAS. 292 (CAL.) Issues involved:
Application for rejection of plaint under Order 7, rule 11 of the Code of Civil Procedure, 1908.

Detailed Analysis:

1. Cause of Action Against Defendant No. 1:
- Defendant No. 1 argues that there is no cause of action against them as they were not a party to the agreement dated September 23, 1998, which forms the basis of the suit.
- Relies on legal precedents like Shanti Prasad Jain v. Kalinga Tubes Ltd. and V. B. Rangaraj v. V. B. Gopalakrishnan to support their position.

2. Opposing Arguments by Plaintiff's Counsel:
- Plaintiff's counsel argues that the suit is derivative in nature and the agreement of September 23, 1998, is essential to understand the changes in shareholding and alleged breaches.
- Emphasizes that the suit is for the protection of defendant No. 1 against delinquent shareholders and seeks management and administration of the company.
- Highlights the breach of negative covenant and the need for all shareholders to participate in the proceedings.

3. Defendant's Response and Interpretation of the Suit:
- Defendant argues that the suit is not for administration of shares but assets, citing Mrs. Bacha F. Guzdar v. CIT.
- Raises concerns about the lack of proper pleading for a derivative action and the absence of commonalty of interest among shareholders.

4. Judicial Evaluation and Decision:
- The court evaluates the rights of the parties based on the 1998 agreement, which led to changes in the shareholding pattern of defendant No. 1.
- Lists the reliefs sought, including the formation of a scheme for asset administration, accounts, and cancellation of share capital increase.
- Considers the application of partnership principles to company law and the need for fair participation of shareholders in asset management.
- Concludes that the suit is misdirected, highlights misjoinder of causes of action, and rejects the plaint under Order 7, rule 11 of the Code of Civil Procedure, 1908.

5. Final Order and Additional Direction:
- The court allows the application for rejection of the plaint and states that the suit cannot be entertained in its present form.
- Orders that any interim orders in place shall stand vacated.

This detailed analysis covers the arguments presented by both parties, the legal principles invoked, the court's evaluation, and the final decision rendered by the High Court of Calcutta in this case.