TaxTMI 
TaxTMI 
2009 (1) TMI 472
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....t. P2. Being a mandatory requirement, the Bank decided to increase the Subscribed Capital by further issue of shares by offering rights shares to the existing shareholders. Ext. P3 special resolution was passed unanimously at the Annual General Meeting held on 30-6-2006 to achieve the above purpose. Accordingly, Ext. P4, letter of offer, offering 1,02,26,307 equity shares of Rs. 10 each at a premium of Rs. 110 per share, but adding a rider that the option for renunciation could be exercised only in favour of existing shareholders of the bank was issued. Ext. P3 would show that Resolution No. 10(i) authorised and empowered the Board of Directors of the Bank to issue further shares of the Bank by way of Rights Issue, Private Placement, Preferential or Firm allotment, Public Issue or by any one or more of the above methods. Resolution No. 10(ii) shows that the Board of Directors was also authorised as per section 81(1A) of the Companies Act (for short, "the Act") to issue shares through private placement on preferential basis as per rule 4 of the Unlisted Public Companies (Preferential Allotment) Rules, 2003. The above rule provides for issue of shares on preferential basis on specifi....
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....and the Reserve Bank of India gave permission. Articles 37 and 38(1) of the Articles of Association also provide for increase in share capital subject to the directions issued by the Company in the General Meeting in a special resolution effecting increase of capital. In Ext. P4, letter of offer with regard to the renunciation of shares, the following restriction was imposed :- ". . . the Board of Directors after considering the legal opinion received by the Bank on the scope of the first proviso to section 67(3) of the Companies Act, 1956, getting attracted to the present Rights Issue, have decided to restrict the option for renunciation exercisable only in favour of the existing shareholders of the Bank so that the rights offer, even remotely, does not become and cannot be treated as an offer made to the public." 2. The appellant along with 103 other shareholders filed an application (C.P. No. 36/2006) under sections 397 and 398 of the Act before the Company Law Board, alleging oppression and mismanagement by impos-ing such restrictions on the basis of Resolution No. 10(ii) under section 81(1A) of the Act. An interim order was passed on 29-6-2006 by the Company Law Board restra....
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....t, it cannot approach the civil court for the same relief merely because the petition filed before the Company Law Board was withdrawn. It was further contended that only the Company Law Board can interfere in the matter, the matter is within the exclusive jurisdiction of the Company Law Board and, hence, the suit is not maintainable and the civil court had no jurisdiction over the matter. It is also pointed out that the suit was filed by paying court fee of Rs. 20 with a valuation of Rs. 500 by which the issuance of shares worth more than Rs. 2 crores, if got stayed would cause irreparable loss and hardship, as no other shareholder out of 28,000 shareholders challenged the above offer. It is also contended that when there is an effective remedy of approaching the Company Law Board, approaching the Civil Court is not at all justified and, if the Reserve Bank's direction to increase the share capital is not allowed, the Bank's future also will be affected. Learned Munsiff found that the petition before the Company Law Board was not maintainable and that the suit is maintainable. It was further held that there is violation of section 81(1)(c) of the Act, and, therefore, by Ext. P9 or....
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....ought not have been entertained as it is not maintainable, etc. Apart from the contentions raised earlier, the respondent Bank contended that by the impugned judgment, learned Judge exercised the jurisdiction under Article 227 of the Constitution, which is a supervisory jurisdiction, no writ appeal will lie against the impugned judgment and hence, the writ appeal is liable to be dismissed at the threshold itself. It is further contended that civil suit itself was dismissed subsequently as without jurisdiction based on the impugned judgment and therefore, Ext. P9 order has become invalid and the appeal is infructuous. 5. The first question to be considered is, whether the Writ Appeal is maintainable. The second question to be considered is, whether the view of the learned Single Judge that the suit is not maintainable is correct or not. Thirdly, if the suit is maintainable, whether against the injunction order (Ext. P 9), a writ petition can be filed by passing the remedy provided under the Code. The next question to be considered is, if the suit as well as the writ petition are maintainable, whether there is any violation of the mandatory provisions of the Act in issuing the share....
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.... exercised suo motu. It is equally needless to point out that there is difference between the writ of certiorari under Article 226 and the supervisory jurisdiction under Article 227 of the Constitution. The proceedings under Article 226 are in exercise of original jurisdiction of the High Court while proceedings under Article 227 are not original but only supervisory. By virtue of powers under Article 227, the High Court can keep subordinate courts and Tribunals within the bound of their authority and not correcting mere errors. If the errors committed by the lower court or Tribunal are manifest and apparent on the face of the record based on clear ignorance and in utter disregard of the provisions of law causing grave injustice, the supervisory jurisdiction can be exercised under Article 227 to prevent injustice even when alternate remedies are available, though such actions are done very sparingly. Section 4 provides for an appeal to the Division Bench from the judgment of learned Single Judge if the judgment is passed in exercise of original jurisdiction and not in exercise of supervisory jurisdiction. The right of appeal is a statutory right and where the statute has provided f....
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....to deprive him of the valuable right of appeal the court ought to treat the application as being made under Article 226 and, if in deciding the matter, in the final order the court gives ancillary directions which may pertain to Article 227, this ought not to be held to deprive a party of the right of appeal under Clause 15 of the Letters Patent where the substantial part of the order sought to be appealed against is under Article 226. Such was the view taken by the Allahabad High Court in Aidal Singh v. Karan Singh AIR 1957 All. 414 (FB) and by the Punjab High Court in Raj Kishan Jain v. Tulsi Dass AIR 1959 Punj. 291 and Barham Dutt v. Peoples' Co-operative Transport Society Ltd., New Delhi AIR 1961 Punj. 24 and we are in agreement with it." (p. 1320) In Sushilabai Laxminarayan Mudliyar v. Nihalchand Waghajibhai Shaha 1993 Supp. (1) SCC 11, at paragraph 4, it was held by the Apex Court as follows :- "4. The Full Bench of the Bombay High Court wrongly understood the above Umaji Keshao Meshram's case (supra). In Umaji's case (supra) it was clearly held that where the facts justify a party in filing an application either under Article 226 or 227 of the Constitution of India and the....
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....Constitution." (p. 688) But here, the question whether a writ under Article 226 can be issued or not is not an issue to be considered as the learned Judge has set aside Ext. P9 order of the civil court exercising supervisory jurisdiction under Article 227 of the Constitution. Considering the wording of section 5 of the Kerala High Court Act, we are of the view that an appeal against an order under Article 227 is not maintainable. Assuming that the writ appeal is maintainable against such order, we consider the other aspects of the case argued by the appellant, as both sides raised contentions on all points. 9. The second question raised for our consideration is whether suit can be filed against a special resolution passed by the Bank for issuing rights shares. It is argued by the appellant that learned Single Judge exercised jurisdiction under Article 227 of the Constitution on the assumption that suit was not maintainable. There is no express provision in the Act barring jurisdiction of the civil court. Under section 9 of the Code, civil court has jurisdiction to try all suits of a civil nature except those of which cognizance by the civil court is either expressly or impliedly ....
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....hares is specifically vested with the Company Law Board. Section 111 of the Companies Act provides that if a company refuses to register the transfer of shares or refuses to rectify the register of shares, the Company Law Board (now, Tribunal) can interfere in the matter. Hence suit is not maintainable. Registration of transfer of shares is entirely different from the power to issue rights shares. It is true that if the rights shares are issued and for any reason, the company refuses to register the shares of a party, aggrieved party can approach the Company Law Board and only the Company Law Board has exclusive jurisdiction to deal with the same and civil court cannot interfere. But, whether the resolution taken to issue rights shares is correct or not, is not a matter vested with Company Law Board for decision and Company Law Board has no jurisdiction to interfere with the resolution passed to issue rights shares. Therefore, we are of the opinion that the civil court has jurisdiction to deal with the matter. 10. It is contended by the respondent that earlier, writ appellant along with others approached the Company Law Board questioning the resolution passed under section 81(1A) ....
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.... at the same time, jurisdiction under Article 227 cannot be limited or fettered even by any Act of the Legislature. The supervisory jurisdiction is very wide and can be used to meet the ends of justice and interlocutory orders also can be set aside. Curtailment of revisional jurisdiction of the High Court by amendment of section 115 Code does not take away or whittle down the power of superintendence, a constitutional power, conferred on the High Court under Article 227 of the Constitution. The supervisory jurisdiction of the High Court is explained by the Supreme Court in Surya Dev Rai's case (supra), as follows :- "22. Article 227 of the Constitution confers on every High Court the power of superintendence over all Courts and Tribunals throughout the territories in relation to which it exercises jurisdiction excepting any Court or Tribunal constituted by or under any law relating to the armed forces. Without prejudice to the generality of such power the High Court has been conferred with certain specific powers by clauses (2) and (3) of Article 227 with which we are not concerned hereat. It is well-settled that the power of superintendence so conferred on the High Court is admin....
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....ned judgment passed by the learned Judge exercising jurisdiction is justifiable. According to the bank, Ext. P9 order is patently illegal and passed in utter disregard to the provisions of law causing irreparable hardship or grave injustice to the writ petitioner warranting interference under the supervisory jurisdiction. According to the appellant, passing of the special resolution is violative of section 67(3). Section 67(3) is admittedly not applicable as that is applicable only with regard to offer of shares made to the public. No arguments were placed before us by the appellant regarding this. With regard to violation of section 81(1), we quote the relevant portion of section 81, which reads as follows :- "Further issue of capital.-(1) Where at any time after the expiry of two years, the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then,- (a )such further shares shall be offered to the persons who, at the date of the offer, are holders of the equit....
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....ciation." 13. Section 81 comes into play whenever it is proposed to increase the subscribed share capital of the company by allotment of further shares. The new shares must be offered to the existing holders of equity shares in the proportion of the shares held by them as provided under section 81(1)(a). That is done here. The object of the section, as held by the Bombay High Court in Nanalal Zaver v. Bombay Life Assurance Co. Ltd. AIR 1949 Bom. 56 is that there should be an equitable distribution of shares and the ratio of the holding shall not be affected by the issue of new shares. Section 81(1)(b) provides that notice should fix a time which should not be less than 15 days from the date of offer within which the offer must be accepted. Section 81(1)(c) provides that the notice shall inform the shareholders that they have the right to renounce all or any of the shares offered to them in favour of their nominees. But the operation of section 81(1)(a) to (c ) can be excluded and new shares can be offered to outsiders to the total exclusion of the shareholders if the company passes a special resolution to allot the new shares in a different manner than what is provided in the sect....
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....on in case of conflict, an overriding effect over the provisions mentioned in the non obstante clause, as held by the Supreme Court in Union of India v. G.M. Kokil AIR 1984 SC 1022, Chandravarkar Sita Ratna Rao v. Ashalata S. Guram [1986] 4 SCC 447. A non obstante clause is a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause, as held by the Supreme Court in Pannalal Bansilal Patil v. State of Andhra Pradesh AIR 1996 SC 1023 at page 1032. In Municipal Corpn. v. Smt. Ratnaprabha AIR 1977 SC 309, the Hon'ble Supreme Court considered section 138(b) of the Madhya Pradesh Municipal Corporation Act, 1956 which enacts that the annual value of any building shall notwithstanding anything contained in any other law for the time being in force be deemed to be the gross annual rent at which such building might reasonably at the time of assessment be expected to be let from year to year. In view of the non obstante clause, the Supreme Court held that annual letting value determined under section 138(b) need not in every case be limited to the standard rent which might be fixed for the building under the Rent Control Act. Here, the non obstante cl....