TaxTMI 
TaxTMI 
2009 (12) TMI 501
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....s dues, such as, electricity dues, creditors' dues, statutory levies as well as demands from the financial institutions. The electricity supply to the said tea estate stands disconnected since the year 2007 and the appellant's-bank has also declared the appellant-company as a non-performing asset and has accordingly initiated proceedings against the appellant-company in the Debts Recovery Tribunal, Guwahati. 2. On the ground that the financial condition of the appellant-company did not make it feasible for the appellant-company to run its business, an extraordinary general meeting of the shareholders of the appellant-company was convened on December 15, 2006. In this extraordinary general meeting, a resolution was adopted that the appellant's tea estate along with its assets and liabilities would be sold so that the dues of the appellant-company could be liquidated. The resolution also empowered the board of directors to negotiate with the highest bidder and sell the shares of the appellant-company without calling for any general meeting of the appellant-company. By another extraordinary general meeting held on March 19, 2007, the shareholders of the appellant-compan....
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....es. On coming to know of the fact that a purchaser had been found, who was willing to purchase the shares, the plaintiff, vide his communication dated October 26, 2007, informed the managing director that the plaintiff proposed to retain Radhabari Tea Estate and also the appellant-company by having all shares of the company at the same price, which had been offered by the highest bidder, who is an outsider and not a member of the family, inasmuch as he (the plaintiff), being grandson of the person, who had been involved in bringing into existence the appellant- company, intended to retain the company within the family. By his said communication dated October 26, 2007, the plaintiff, thus, sought to exercise his pre-emptive or preferential right of purchase of the shares of the other shareholders and requested the managing director of the appellant-company to place the plaintiff's proposal to the board of directors for final approval. 7. As the plaintiff expressed his desire to purchase the share of the appellant-company, one of the directors (i.e., proforma respondent No. 3 in the present appeal, who was defendant No. 5 in the suit) issued a communication dated November 26, ....
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.... it clear that the plaintiff was not a bidder for the shares of the appellant-company, but was only putting his pre-emptive right of purchase of shares at the price, which might be offered by the highest confirmed bidder from outside the family. 9. The appellants allege that it was due to delaying tactics adopted by the plaintiff-respondent that the highest bidder lost interest and became noncommittal. The appellant-company also alleges that the plaintiff-respondent did not really have any intention to purchase the shares ; otherwise, he could have purchased the shares at the rate, which had been offered by the person, who had, as mentioned above, came forward to buy the shares along with all the assets and liabilities of the appellant-company. The plaintiff-respondent, however, denies that it was due to his fault that the highest bidder withdrew yet the fact remains that the plaintiff-respondent was, admittedly, informed about the highest bid, but the plaintiff-respondent had not, promptly and positively, responded to the highest bid, which was available from the bidder, who had come forward to buy the shares. 10. Be that as it may, the appellants' case is that respondin....
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....so permanent injunction. In his suit, the plaintiff-respondent impleaded the appellant-company and four of its directors as parties. The share holders, who are owners of the shares and who are persons, who have the authority to sell or transfer their respective shares in terms of the articles of association of the appellant-company, have not been made parties nor any reliefs has been sought for against the shareholders. The reliefs, which the plaintiff-respondent sought for, in the suit, read as under : "(a)a decree declaring that the plaintiff has the preferential right and/or right of pre-emption to purchase the shares of defendant No. 1 from the selling members ; (b)a decree declaring that the defendants have no right to sell or transfer the shares of defendant No. 1 to any outside third party depriving a willing and desirous shareholder from purchasing the shares from selling members ; (c)a decree declaring that the communication/letter dated February 9, 2008, with annexures therewith, issued by the then managing director of defendant No. 1 addressed to the shareholders, including the plaintiff, is illegal, in-operative, not binding, contrary to the articles of associa....
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....laintiff-respondent, thereby restraining the appellants herein, their agents, attorneys, assigns and employees from selling, transferring and giving possession of the shares of the appellant-company to any outsider and/or from leasing out Radhabari Tes Estate and delivering possession thereof to any outsider/third party pursuant to any sale, transfer or lease. 14. Aggrieved by the order of injunction, so passed, the appellants are before this court. 15. Before I deal with this appeal, on merit, some events, which the appellants have brought on record, as having been taken place subsequent to passing of the impugned order dated May 14, 2009, may be taken note of. 16. Following the impugned order dated May 14, 2009, the proposed buyer of the shares of the appellant-company became disinterested. In the mean while, 37 (thirty seven) shareholders of the appellant-company informed the managing director that they wanted to sell their shares at a price not less than Rs. 800 per share and requested the managing director to find suitable shareholder, who was willing to buy their shares at a price not less than Rs. 800 per share, or else they (the said 37 shareholders) sought for aut....
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.... rule 5 read with section 151 of the Code of Civil Procedure seeking stay of the impugned order dated May 14, 2009, aforementioned. 18. I have heard Dr. A. K. Saraf, learned senior counsel, appearing on behalf of the appellants and Mr. S. Ali, learned counsel, appearing for the plaintiff-respondent. Submissions : 19. Appearing on behalf of the appellants, Dr. A. K. Saraf, learned senior counsel, submits that in the case at hand, the shares are owned by the shareholders and in their absence, no effective decree for specific performance of contract to sell the shares in preference to an outsider can be passed in the suit and, hence, the shareholders, being necessary parties, the suit was prima facie not maintainable in law in their absence. Injunction could not have, according to Dr. Saraf, been granted in the present case, when the suit was prima facie not maintainable due to the plaintiff's omission to implead the shareholders as parties. 20. Dr. Saraf contends that according to the plaintiff-respondent, the articles of association, in the present case, give a shareholder pre-emptive right to buy shares in preference to an outsider ; hence, in the case of the refusa....
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....fer is in fulfilment of any object considered as charitable or beneficial or for public purpose or warranted under the terms of a trust deed created by the share holder with any such object. In such circumstances, contends Dr. Saraf, a shareholder's pre-emptive right, in the present case, cannot be said to be absolute and unqualified. This vital aspect, contends Dr. Saraf, has been completely lost sight of by the learned trial court. When a trial court, submits Dr. Saraf, misconstrues a document or a provision of a deed, while reaching a decision, such a decision can be interfered with by the appellate court. In support of this submission, Dr. Saraf places reliance on Ramdev Food Products P. Ltd. v. Arvindbhai Rambhai Patel reported in [2006] 8 SCC 726. 23. Dr. Saraf submits that the decision to sell shares to an outsider, who would agree to take all the assets and liabilities of the company, was beneficial and in public interest and this decision was a decision of the company, as a whole, inasmuch as the company had run into losses. Dr. Saraf also submits that the statutory dues have not been paid by the company, financial institutions have instituted proceedings for recove....
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....of the shareholder to sell the shares to an outsider becomes known to the shareholder, who is interested in making purchase of such a share. In the present case, points out Dr. Saraf, it is the admitted case of the plaintiff that the plaintiff had known all along about the resolutions adopted in the extraordinary general meeting held on December 15, 2006 and March 19, 2007, to which he (the plaintiff) was a party and he (plaintiff), having also come to know that the board of directors had found a purchaser, who was willing to purchase the appellant-company along with its assets and liabilities, sent a communication dated October 26, 2007, expressing his willingness to purchase the shares at the rate at which the shares were offered to be purchased by the outsider. Thus, points out Dr. Saraf, while the plaintiff, having known on October 26, 2007, that a purchaser for shares had already been found, offered to buy the shares, but he did not deposit the requisite money within the prescribed period of 14 days. In such circumstances too, the plaintiff's preemptive rights, if any, stood, according to Dr. Saraf, extinguished, but this aspect too has not been taken note of by the learne....
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....oticed the fact as to whether an order of injunction can be passed without bringing on record the necessary parties, and, in the case at hand, when the shareholders are owners of the shares, their decision to sell the shares cannot be disturbed without impleading them as necessary parties. The observation, made by the learned trial court, in its order granting injunction that the provisions of section 397 of the Companies Act are not attracted, is not supported by any reasoning. Such an order, according to Dr. Saraf, has no legal sanction and needs to be interfered within the interest of justice. 29. In the present case, contends Dr. Saraf, no shareholder has an absolute or unqualified right to demand that the shares must be sold to him inasmuch as the board of directors has the discretion to allow transfer of shares in terms of the articles of association and when the provisions of the articles of association are not under challenge, the discretion of the board of directors, to allow transfer of shares to an outsider without the offer of sale of such, shares having made to the other shareholders of the appellant-company, could not nave been taken away as has been done in the pr....
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....f injunction, having been well satisfied in the present case, this court, as an appellate court, may not, in the facts and circumstances of the present case, interfere with the impugned order. 32. In support of his submission that the appellate court's power, against the exercise of discretion of granting injunction by the trial court, is circum scribed and that an appellate court must be slow in interfering with the discretionary exercise of jurisdiction of granting injunction, Mr. Ali places reliance on Wander Ltd. v. Antox India P. Ltd. reported in [1990] (Supp) SCC 727 and Smt. Kausalya Barua v. Brahmaputra Construction Ltd. reported in [2005] 2 GLT 190 ; AIR 2005 Gauhati 149. 33. Mr. Ali points out that the articles of association of the present company contain terms and conditions of a contract between the company and the shareholders and also the shareholders inter se. In such circumstances, the terms and conditions, embodied in the articles of association, as regards transfer of the shares, can be, according to Mr. Ali, specifically enforced by an aggrieved shareholder. In the present case, the learned trial court has correctly pointed out, contends Mr. Ali, that ....
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....tion by the appellate court. In the present case, submits Dr. Saraf, the learned trial court has not considered at all if the shareholders were necessary parties. If the shareholders were necessary parties in the suit, in their absence the suit was not maintainable and when the suit is not maintainable, even any interlocutory order of injunction cannot, according to Dr. Saraf, be passed. Support for this submission is sought to be derived by Dr. Saraf from the cases of Shiv Kumar Chadha v. Municipal Corporation of Delhi reported in [1993] 3 SCC 161 and Pranab Kumar Banerjee v. Momin Ali alias Mukib Ali reported in [2006] 2 GLR 26. 37. Dr. Saraf points out that the learned trial court, in the present case, has also brushed aside the fact that the plaintiff has specifically alleged, in his pleadings, that the board of directors has mismanaged the affairs of the company and has caused loss to the company. According to Dr. Saraf, these allegations are tantamount to saying that the plaintiff's voice of protest against the mismanagement of the company and against the extraordinary resolution of the general meeting of the shareholders were ignored and suppressed ; hence, the decisi....
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....les of association are binding upon the appellant-company, its directors and all the shareholders. In support of his case, the plaintiff relies on clauses 7(b), 7(c) and 7(d ) of the articles of association, which the plaintiff contends confer a pre-emptive right on the plaintiff, as a shareholder, to purchase the shares of the appellant-company. In other words, according to the plaintiff, he, in terms of the articles of association, has, in the facts and attending circumstances of the present case, preferential right of purchase of shares. In the facts and circumstances of the present case, therefore, whether the learned trial court have, legally and justifiably, granted injunction in the manner, as indicated above, by its order dated May 14, 2009 ? This is the moot question, which this appeal has raised for determination. 40. The answer to the moot question framed above needs to be determined on the basis of the answers to some other relevant questions. Broadly speaking, the questions are : (i) What is the appellate court's power and role in dealing with an order of injunction passed by a trial court ? (ii) What do the articles of association of a company mean and what the....
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....y exercise of power of granting injunction has or has not been justifiably granted. The three golden principles, which govern the grant of injunction, are nothing, but conditions, which are required to be satisfied by a party in order to enable it to obtain an interlocutory order of injunction. 42. Consequently, in such appeals, while the appellate court will not, ordinarily, substitute its own discretion in place of that of the trial court, yet where discretion is shown to have been exercised arbitrarily, capriciously or by ignoring settled principles of law regulating grant or refusal of interlocutory injunction, the appellate court is bound to interfere, for, non-interference with such exercise of powers by the trial court will, if allowed to remain good on record, cause serious miscarriage of justice. It is also important to bear in mind that the appellate court may not be, normally, justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage, it would have come to a contrary conclusion. While granting injunction, if discretion has been exercised by a trial court reasonably and by adhering....
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....e application of the well-settled principles in an individual case".' The appellate judgment does not seem defer to this principle." 43. Mr. Ali is, therefore, not incorrect in referring to the case of Smt. Kausalya Bania v. Brahmaputra Construction Ltd. reported in [2005] 2 GLT 190 ; AIR 2005 Gauhati 149, wherein the court has held that the power of interference by the appellate court in matters of injunction is circumscribed and that the appellate court would be slow to interfere with the exercise of jurisdiction and would not, normally, be justified in interfering with the exercise of discretion under appeal on the sole ground that if it had considered the matter at the trial stage, it might have come to a contrary conclusion. 44. What is, however, of immense importance to note is that neither the Wander Ltd. (supra ) nor Smt. Kausalya Barua ( supra) lays down that the appellate court shall not interfere with an interlocutory order of injunction if exercise of jurisdiction by trial court, in the matter of granting or refusing to grant injunction, is against the settled principles, which govern exercise of power of granting injunction on interlocutory applications fo....
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....te the debts of all the creditors in accordance with and to the extent permitted by the Act. There can be no question that these are the true tests for determining whether a person is a necessary party to certain proceedings ..." (emphasis supplied) 47. Thus, in Rama Krishna Narain (supra), two tests have really been laid down for determining the question as to who can be regarded as necessary party in a civil suit, the tests being (1) that there must be a right to some relief against such a party in respect of the matter involved in the proceedings, in question, and (2) that it should not be possible to pass an effective decree in the absence of such a party. 48. What follows from the above discussion is that in order to treat a person as a necessary party to a suit, such a person must be one against whom the right to relief can be claimed and in whose absence, it is not possible to pass an effective decree. Whether maintainability of a suit is an aspect, which needs to be examined by the court, before acceding to a prayer for granting an interlocutory order of injunction and, if so, what can be the extent of such examination? In the absence of a necessary party to a suit....
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.... Chadha v. Municipal Corporation of Delhi reported in [1993] 3 SCC 161, the apex court has, in no uncertain words, held that before any order of injunction is passed, the court must be satisfied that strong prima facie case has been made out against the plaintiff including, amongst others, on the question of maintainability of the suit. The relevant observations, made in this regard, in Shiv Kumar Chadha ( supra), read (page 175): "30. It need not be said that primary object of filing a suit challenging the validity of the order of demolition is to restrain such demolition with the intervention of the court. In such a suit the plaintiff is more interested in getting an order of interim injunction. It has been pointed out repeatedly that a party is not entitled to an order of injunction as a matter of right or course. Grant of injunction is within the discretion of the court and such discretion is to be exercised in favour of the plaintiff only if it is proved to the satisfaction of the court that unless the defendant is restrained by an order of injunction, an irreparable loss or damage will be caused to the plaintiff during the pendency of the suit. The purpose of temporary inj....
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.... and determine where the balance of convenience lies. It is being an equitable relief it rests on the sound judicial discretion of the court, to be exercised in the backdrop of the facts of each case. While granting or refusing the injunction, the court is also required, to see the conduct of the parties." 53. In fact, even before the decision in Shiv Kumar Chadha ( supra), A three-Judge Bench in Municipal Corporation of Delhi v. Suresh Chandra Jaipuria reported in [1976] 4 SCC 719, had the occasion to consider the question as to whether a court can grant interim injunction, when a prima facie case has not been made out in the sense that the suit is barred in law. The apex court in Suresh Chandra Jaipuria ( supra), while abstaining from deciding the question as to whether the suit is or is not barred, pointed out that the question as to whether a suit is or is not barred is a question, which will have a bearing upon the question whether a prima facie case existed for granting any interim injunction or not. The relevant observations, made by the apex court at paragraph 10 reads (page 722): "However, we abstain from deciding the question whether the suit is barred or not on thi....
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....court ought not to have granted injunction. The three grounds are : (i) that the plaintiff, as a share holder of the appellant-company, alleges oppressiveness and mismanagement in the affairs of the company by the board of directors and when a shareholder makes such an allegation, his remedy lies in making appropriate application under section 397 and/or 398 of the Companies Act inasmuch as a case, which is covered by the provisions of sections 397 and 398, falls within the exclusive domain of the Company Law Board, and the court of ordinary civil jurisdiction cannot try such a suit; (ii) even if the civil court had jurisdiction in the present case, the nature of reliefs, which the plaintiffs had sought for, required the shareholders (who had decided to sell their shares), to be necessarily made parties to the suit and, in their absence, neither the suit was maintainable nor the injunction, as sought for, could have been legally granted by the learned trial court; and (iii) and even, on merit, no prima facie case for granting of any injunction could be said to have been made out and, hence, prohibitory injunction, as granted by the impugned order, is not sustainable. 59. As agai....
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....e case of one or two-man companies) for day-to-day administration to be undertaken by such a cumbersome piece of machinery. So the modern practice is to confer on the directors the right to exercise all the company's powers except such as the general law expressly provides must be exercised in general meeting. Of course, powers, which are strictly legislative, are not affected by the conferment of powers on the directors as section 31 of the Companies Act provides that an alteration of an article would require a special resolution of the company in general meeting. But a perusal of the provisions of the Companies Act itself makes it clear that in many ways, the position of the directorate vis-a-vis the company is more powerful than that of the Government vis-a-vis Parliament. The strict theory of Parliamentary sovereignty would not apply by analogy to a company since under the Companies Act, there are many powers exercisable by the directors with which the members in general meeting cannot interfere. The most they can do is to dismiss the directorate and appoint others in their place, or alter the articles so as to restrict the powers of the directors for the future. Gower hims....
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....iews bind the company. This position is well illustrated by the case of Foss v. Harbottle [1843] 2 Hare 461, too, wherein two of the shareholders instituted a proceeding against the directors and some others alleging against the defendants fraudulent and illegal transactions, whereby property of the company was misapplied, alienated and wasted, but at the general meeting, the majority resolved that no action should be taken against the directors. Dissatisfied with the majority decision of their company, two of the minority shareholders initiated legal proceedings against the directors and others to compel them to make good the losses to the company. The court dismissed the action on the ground that, as the acts of the directors were capable of confirmation by the majority of members, the court should not interfere ; it was, thus, left to the majority to decide what was for the benefit of the company. This principle has been applied in several later cases (see Macdougall v. Gardiner [1875] 1 Ch. D 13, 14). 65. Palmer, in his Company Law, 21st edition (1968), points out that in English company law, while the substantive aspects of the rule of the majority are not neglected, the em....
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....f the subsequent judicial pronouncements, particularly, Edwards v. Halliwell reported in [1950] 2 All ER 1064 (CA), exceptions to the general rule as propounded in Foss ( supra), are a resolution, which is ultra vires or illegal or is a fraud on the minority or is not bona fide or for the benefits of the company as a whole or is intended to discriminate between the majority shareholders and the minority shareholders is illegal and can be questioned by a separate action by the aggrieved shareholder. The reason is that if the minority were denied their right, their grievance could never reach the court, because the wrongdoers, being themselves in control, do not allow the company to sue. 67. The question, however, remains as to when a director or a company's act can be regarded as ultra vires. Let me, before proceeding further, point out the development and application of the doctrine of ultra vires in the field of Company Law. An action, taken by the board of directors of a company or the company itself beyond the powers conferred on the company and/or its directors by the memorandum of association of the company, is ultra vires. The legality of such transaction was judged by....
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....necessary to do with a view to the attainment of the objects specified in the memorandum. (ii)Power to do whatever else (all such other things), which may fairly be regarded as incidental to, and consequential upon, its objects. (iii)Power to do such other things as are authorised to be done by the Companies Act or by any other statute." 73. Thus, such transactions, which do not fall under any of the three categories mentioned above, are regarded as ultra vires. 74. The doctrine of ultra vires, I may point out, was developed to safeguard essentially the interest of the shareholders. By means of this doctrine, as already indicated above, there is judicial control on the affairs of the company, because the shareholders may not be able to control the affairs of the company inasmuch as the affairs of the company are, ordinarily, carried out by its directors. It is, therefore, said that in theory, the shareholders, scattered over large geographical area, are the masters of the company, but, in actual practice, they have often been only in the position of sleeping partners. 75. The question, now, is what is the remedy under the law for a shareholder, who considers himself ....
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....e control of the company into the hands of the aunt and her fellow directors so as to deprive the plaintiff of her existing rights as a shareholder with more than 25 per cent, of the votes and to ensure that the plaintiff would never get control of the company. Those considerations, according to the court, were sufficient, in equity, to prevent the aunt using her votes as she had and the resolutions were accordingly set aside by the court. In reaching the said decision, the court applied the dicta of Sir Richard Baggallay, in North-West Transportation Co. Ltd. v. Henry Beatty [1887] 12 AC 589 at 593 (PC), of Lindley M. R., in Allen v. Gold Reefs of West Africa Ltd. [1900] 1 Ch 656 at 671, of Evershed M. R., in Greenhalgh v. Arderne Cinemas Ltd. [1950] 2 All ER 1120 at 1126 (CA), of the Lord President (Lord Cooper) in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 ; [1959] 29 Comp. Cas. 1 (HL) and of Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 at 500 (HL). 78. The fallout of the decision in the case of Clemens ( supra), is this : Even when the act of the majority of the shareholders is perfectly legal, it can nevertheles....
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.... a manner oppressive to any member or members ; and (b)that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up ; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Company Law Board for relief, in cases of mis management.-(1) Any members of a company who complain- (a)that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company ; or (b)that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its board of directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that ....
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....y casts which the Company Law Board dealing with the application may order such member or members to pay to any other person or persons who are parties to the application. 400. Notice to be given to Central Government of applications under sections 397 and 398.-The Company Law Board shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order under that section. 401. Right of Central Government to apply under sections 397 and 398.-The Central Government may itself apply to the Tribunal for an order under section 397 or 398, or cause an application to be made to the Tribunal for such an order by any person authorised by it in this behalf. 402. Powers of Tribunal on application under section 397 or 398.- Without prejudice to the generality of the powers of the Tribunal under section 397 or 398, any order under either section may provide for- (a)the regulation of the conduct of the company's affairs in future ; (b)the purchase of the shares or interests of any members of the company by other members thereo....
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....r the expression, "Company Law Board". Thus, the Tribunal not having been constituted so far, the term, "Tribunal", which occur in sections 397, 398 and 399, has to be read as "Company Law Board". 81. From a careful reading of the various statutory provisions, contained above, what transpires is that according to section 397, the affairs of the company, public or private, must be conducted in a manner, which is not prejudicial to public interest and not oppressive to any of its member or members. Section 398, similarly, indicates that the affairs of every company, public or private, must be conducted in a manner, which is neither prejudicial to public interest nor prejudicial to the interest of the company. If the affairs of the company are being conducted in a manner prejudicial to public interest or, in a manner oppressive to any member or members, an application, under section 397, may be made to the Company Law Board. Though, in such circumstances, the company may be decided to be wound up, yet, the Company Law Board, if it is of the opinion that winding up the company would be unfair, may pass such order as it thinks fit. Similarly, section 398 provides that any member of a....
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....rted to by a shareholder to set at naught the decision of the majority shareholders inasmuch as the majority shareholders' view must, ordinarily, be allowed to prevail unless the decision of the majority (as reflected by sections 397 and 398), is prejudicial to public interest or interest of the company or oppressive to any member or members. 86. I may pause here to point out the provisions, which we find contained in Chapter VI, are provisions, which were introduced, for the first time, in the Indian Companies Act, 1913, in the form of section 153-C, section 153-C being based, in turn, on section 210 of the English Companies Act, 1948 which had introduced, for the first time, in England, the scheme, which we, now, find incorporated in sections 397 and 398. The purpose of introducing section 210, in the English Companies Act, was to provide an alternative remedy to the process of winding up if there was mismanagement of the company or management of the company was carried out in such a manner, which was oppressive to the minority shareholders. Law has always provided for winding up, whenever it was found that it was just and equitable to wind up a company. With the growth of....
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....me of sections 397 and 398 inasmuch as the expression, "are being conducted in a manner prejudicial to the public interest", has been introduced into sections 397 and 398, for the expression, "are being conducted". Hence, in the past, a member of a company could have approached the Company Law Board if the affairs of the company were being conducted in a manner oppressive to him and similarly situated other members provided that such member(s) had the requisite qualification to apply by virtue of section 399. Similarly, an application could have been made under section 398 if the affairs of the company were being conducted in a manner prejudicial to the interest of the company. By the Act 53 of 1963, a member of a company can, now, also apply to the Company Law Board if the affairs of the company are being conducted in a manner prejudicial to "public interest" provided he is competent, in terms of the provisions of section 399, to make such an application. If the Company Law Board finds the complaint to be correct and genuine, it may pass such order as it thinks fit. 89. What is also required to be noted, at this stage, at the cost of repetition, is that unless a member of a com....
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....number of shares, is not mandatory. What, in substance, J. P. Srivastava (supra), held was that even if consent, in writing, is not shown, yet when the materials on record disclosed that had such a consent existed, the Company Law Board would have jurisdiction. 92. Logically, therefore, an applicant must have support of requisite number of members or must hold requisite number of shares. The reason is very simple and the reason is that merely because of the fact that a shareholder thinks otherwise than what the majority thinks, he cannot create obstacles in the way of management of the company. Notwithstanding the fact that there is no right to make an application under section 397 or section 398 if a shareholder does not have support of requisite number of members or does not hold the requisite number of shares, a shareholder has the right to apply to the Central Government for leave and if authorised by the Central Government,, such a shareholder can still make an application under section 397 or 398. This shows that the minority shareholder is not without a remedy. However, the anxiety of the lawmakers is too glaring in the scheme of Part VI and the scheme clearly is that the....
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....es Act, 1956." (emphasis supplied) 95. The expression, "completely", which occurs in the observations "jurisdiction of the civil court is not completely ousted", made in Dwarka Prasad Agarwal (supra), indicates that in every case, it would be a matter for determination by the court if the provisions, contained in the Companies Act, bar a particular suit brought before the civil court and, in an appropriate case, the civil court may decline to exercise its jurisdiction if it finds that its jurisdiction stands ousted by the Companies Act. 96. The conclusion, reached in Dwarka Prasad Agarwal (supra), that the jurisdiction of the civil court is not "completely" ousted by the Companies Act, 1956, has been taken note of and impliedly relied upon in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad reported in [2005] 123 Comp. Cas. 566 ; [2005] 11 SCC 314. 97. What is, however, important to note is that in Sangramsinh P. Gaekwad (supra), while referring to Dwarka Prasad Agarwal ( supra), the apex court has reiterated that it is, now, well-settled that the jurisdiction of the civil court is not "completely" ousted by the provisions of the Companies Act, 1956, meaning thereby that ou....
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....emedy or the jurisdiction of the civil court, (see Premier Automobiles Ltd. v. Kamlakar Shantaram Wadke reported in AIR 1975 SC 2238 and Rajasthan Road Transport Corporation v. Bal Mukund Bairwa reported in [2009] 4 SCC 299). 101. In Secretary of State v. Mask and Co. reported in [1940] 67 IA 222, it has been held by the Judicial Committee of the Privy Council that the ouster of jurisdiction of a civil court is not to be lightly inferred and can only be established if there is an express provision of law or is clearly implied. 102. The dicta of Wills, J ., in Wolverhamtos New Waterworks Co. (supra), has been quoted, and relied upon, in Dhulabhai v. State of M. P., AIR 1969 SC 78. The relevant observations, made by the apex court, in Dhulabhai (supra), are quoted below (page 18) : "8. . . . jurisdiction of the civil courts is all embracing except to the extent it is excluded by an express provision of law or by clear intendment arising from such law. This is the purport of section 9 of the Code of Civil Procedure. How section 9 operates is perhaps best illustrated by referring to the categories of cases, mentioned by Willes, J., in Wolverhamtos New Waterworks Co. v. Hawkesf....
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....m of association became increasingly popular, despite the difficulties which the Bubble Act, so long as it was on the statute book, placed in its way. As the Industrial Revolution advanced, business entrepreneurs began again to recognize the advantages derived from co-operation in commercial enterprise, namely the advantage of raising funds for the purposes of large undertakings by means of contributions from a number of small capitalist ready and willing to co-operate, and that of minimizing the risk by spreading the liability. The difficulty was how to secure these advantages. A charter of private Act of Parliament was often too costly or impracticable. Business operators had to devise for themselves a new form of partnership which would possess the advantages as nearly as might be of a chartered corporation, and in particular would have shares of a fixed amount freely transferable by the holders. The outcome of these commercial needs was the unincorporated company, the lineal ancestor of the ordinary company under the Companies Act. The deed of settlement by which such an unincorporated company was formed was made between the various shareholders and the trustee or trustees with....
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.... amends section 4(2) of the Limited Partnerships Act 1907. The existing exemption orders in favour of certain stated professions are not repealed but fall into disuse." 106. The history of development of companies, as indicated by Palmer, clearly indicates that it is the law of contract, which became the basis of the deed of settlement of companies. The English Companies Act largely regulates, by way of statutory provisions, the contractual rights of the parties. The general law of contract is, thus, the basis of the rights of the parries even in the affairs of the company, though, as we would note shortly, the Companies Act does give to the shareholders some rights, which never existed in common law. Unless, therefore, there is exclusion of jurisdiction of the civil court by words, express or implied, in a given case, a suit will be maintainable for enforcement of such rights of the shareholders, which are contractual in nature. Same situation prevails in India. 107. A narration of the history of the provisions, contained in sections 397 and 398, clearly shows that no right had existed with a minority share holder to apply, instead of opting for winding up, for suitable orde....
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....ltra vires the company or illegal or when the decision constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; or when a resolution, which requires a qualified majority, has been passed by a simple majority. If the decision of the majority does not fall under any of the exceptions as indicated hereinbefore, the remedy of the aggrieved shareholder lies, unless his rights and liabilities are founded on common law, in applying under section 397 or 398, as the case may be, if he considers such a decision to be oppressive or against the interest of the company or against the interest of the public and, further, if he holds adequate number of shares or has the support of adequate number of shareholders as are statutorily required by section 399 or else, if he is authorised by the Central Government. 110. What logically follows from the above discussion is that if the grievances of the plaintiff-respondent herein are founded on his rights under the common law, he can file a suit, in the civil court of ordinary jurisdiction, for remedy of his grievances ; but if his grievances are founded on statutory rights, which are created, for the first....
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....mpany. Section 428 defines "contributory" and it includes the holder of any shares, which are fully paid-up. Apart from the rights given to a share holder to apply for appropriate order(s) under sections 397 and 398, the shareholder, as a contributory, has also the right to apply for winding up of the company under section 439. On winding up, section 475 enables the court to adjust the rights of the contributories amongst themselves and to distribute the surplus among the persons entitled thereto. 117. It may be noted that section 3(iii) of the Companies Act, 1956, defines private company to mean a company, which, by its articles, restricts the right to transfer its shares, if any, and limits the number of its shares to 50 (excepting employees and ex-employees, who were and are members of the company) and prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company. 118. Section 82 defines the nature of shares and states that the shares or other interests of any member, in a company, shall be movable property transferable in the manner provided by the articles of association of the company. Thus, section 82 itself recognises share as mo....
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....eing interested in the company. Some private companies are, in fact, so constructed as to amount, in economic terms, to incorporated partnerships with the attendant close connection between the members. For this reason, in private companies, the regulation, dealing with the restriction of the right to transfer shares, even though no longer required by law, remains of particular practical importance". 122. It has to be further borne in mind that a pre-emptive right to buy shares of his company is granted in favour of a member of a private company under the articles of association so that his right of control is not taken away. Exercise of such pre-emptive rights is, particularly, needed in relation to those private companies, which are essentially incorporated partner ships. (See Gower and Davies' Principles of Modern Company Law, 7th edition, page 635.) 123. The question, therefore, is : whether transfer of a share by a shareholder, in violation of another shareholder's pre-emptive right to buy such share, as provided for in the articles of association, is a valid transaction ? The question, so posed, brings me to the case of Hunter v. Hunter reported in [1936] AC 222....
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....apex court points out that the only restriction on the transfer of the shares of a company is as may have been laid down in the articles of association, if any. A restriction, which is not specified in the articles, is, therefore, according to the apex court, in V. B. Rangraj ( supra), not binding either on the company or on the shareholders and that the vendee of such shares cannot be denied registration of the shares purchased by him on a ground other than what is stated in the articles of association. 127. In V. B. Rangraj (supra), what fell for determination of the court was when the shareholders, amongst themselves, had entered into an agreement, imposing on themselves restrictions to transfer shares, which were contrary to, and inconsistent with, the articles of association of their company, as regards transfer of share, whether such agreement can prevail upon the articles of association. 128. On finding, in V. B. Rangraj (supra), that the articles of association do not impose any such restrictions, which the shareholders had, by a separate agreement entered into, the apex court took the view that no restriction, on the transfer of shares, can be imposed by private agre....
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.... so when a restriction is capable of two meanings, the (less restrictive interpretation will be adopted by the court. It is also made clear that these restrictions have to be embodied in the articles of association" 130. With regard to the restriction on transfer of shares, Halsbury's Laws of England, (Fourth edition), at paragraph 863, states : "863. Restriction on transfer of shares.-The articles of many companies contain some restrictions on the right of transfer. A restriction on the right to transfer shares is not repugnant to the absolute Ownership of the shares, but is one of the original incidents of the shares attached to them by the contract contained in the articles. Restrictive provisions are strictly construed because shares, being personal property, are prima facie transferable. Where the scheme and intent of the restrictions are to accord rights of pre-emption to the other members of the company, if there is no substantial compliance with the procedure laid down, the shareholder denied such rights is entitled to an appropriate injunction to protect his position." 131. Thus, a restriction, on the right to transfer shares, is not repugnant to the abs....
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....pany or its shareholders, in general, or the directors, which is beyond the powers contained in the memorandum of association or not authorised by the memorandum of association of the company or law, would be nothing but ultra vires unless the action can be regarded, as already discussed above, incidental to, or consequential upon, the powers, which the person, taking the action, otherwise, enjoy. If a decision is ultra vires, such a decision cannot be legally enforced. 134. What is, now, necessary to point out is that section 10 of the Specific Relief Act, 1963, makes, a contract specifically enforceable if there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done, or when the act agreed to be done, is such that compensation, in money, for its non-performance, would not afford adequate relief. Normally, in the case of a contract to transfer movable property, specific performance is not granted except in circumstances specified in the explanation to section 10 of the specific Relief Act, 1963. One of the exceptions is where the property is "of special value or interest to the plaintiff, or consists of goods, which are ....
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....all within the four corners of sections 397 and 398 of the Companies Act, 1956. 139. Even in M. S. Madhusoodhanan v. Kerala Kautnudi P. Ltd. reported in [2003] 117 Comp. Cas. 19 ; [2004] 9 SCC 204, the apex court has held that the specific performance of a contract for transfers of shares, in a private limited company, could be granted. 140. I may, in this regard, refer to the observations made by the apex court in M. S. Madhusoodhanan v. Kerala Kaumudi P. Ltd. reported in [2003] 117 Comp. Cas. 19 ; [2004] 9 SCC 204, which read as under (page 62 of 117 Comp Cas) : "141. Subject to this restriction, a holder of shares in a private company may agree to sell his shares to a person of his choice. Such agreements are specifically enforceable under section 10 of the Specific Relief Act, 1963, which corresponds to section 12 of the Specific Relief Act, 1877. The section provides that specific performance of such contracts may be enforced when there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done ; or when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate r....
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...., if so authorised by the articles of association, refuse transfer of shares. Thus, an agreement between two shareholders or between a shareholder or outsider to transfer share is enforceable against the one, who is a party to such an agreement, and such an agreement would not be binding on the company unless, the company is also a party to such an agreement. If the articles of association of a company give pre-emptive right to a shareholder, it becomes a contract not only between the share holder and the company, but also the shareholders inter se. In a suit for specific performance of such a contract, not only the shareholder, against whom pre-emptive right is sought to be exercised, but even the company would be necessary parties. 144. What logically follows from the above discussion is that when there is a contract for sale of shares between two shareholders of the same company or between a shareholder and an outsider, the shareholder or the outsider, whoever was to purchase share, may institute a suit for specific performance of contract against the shareholder, who was to sell share. To such a suit, the company is not, unless the company was also a party to the agreement, ....
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....ovides for the presentation of the instrument of transfer, in the prescribed form, to the prescribed authority for the purpose of having duly stamped on it the date of such presentation. Section 108(1A)(b) provides for the delivery of the duly stamped instrument to the company within, generally, two months from the date of such presentation. Section 110 provides for application for transfer of shares. Section 111(1) preserves the power of the company under its articles to refuse to register the transfer of any shares of the company and section 111(3) provides for an appeal to the Central Government against such refusal to register. Section 206 obliges a company not to pay the dividend in respect of any share except to the registered holder of such share or to his order or to his bankers or where a share warrant has been issued, in respect of the share, to the bearer of such warrant or to his banker. 148. Let me pause, at this stage, to consider the question as to what will happen if transfer of share by one shareholder to another or by a share holder to an outsider is refused to be recognised by the directors in exercise of their powers under section 111 of the Companies Act, 19....
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....;. Where the articles permitted the directors to decline to register the transfer of shares without assigning reasons, the court would not necessarily draw adverse inference against the directors but will assume that they acted reasonably and bona fide. Where the directors gave reasons the court would consider whether the reasons were legitimate and whether the directors proceeded on a right or wrong principle. If the articles permitted the directors not to disclose the reasons, they could be interrogated and asked to disclose the reasons. If they failed to disclose that reason, adverse presumption could be drawn against them." 150. Broadly in tune with the above position of law, as I have already pointed out, can also safely hold that notwithstanding the pre-emptive right, which a shareholder may have under the articles of association and can specifically enforce such pre-emptive right to buy shares, the shareholders' freedom to sell shares to an outsider, or the board of directors' power to allow such transfer of share to an outsider, must be liberally construed ; whereas restrictions on such a freedom, imposed by the articles of association, have to be strictly constr....
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.... is a right, which ex hypothesi the court never had to sell. I infer that the appellant never bought it. This conclusion seems to me to be reinforced by the consideration to which the learned judge has referred, the consideration, namely, that upon the case for the appellant nothing would be easier than to override that part of the memorandum of association which invests the directors with a discretion to refuse to admit undesirable candidates. For if the appellant is right, then a person whose professed object might be to wreck or damage the company could nevertheless oust the director's discretion, and compel them to register him, by the simple process of purchasing through the court after a collusive decree. On these grounds, I am of opinion, that notwithstanding that the appellant's purchase was made through the court, the directors' powers, under the memorandum of association, for refusing to accept the appellant as a shareholder, are unaffected. 2. The issue in this case raises two questions, one of law, and the other of fact. The question of law is whether the purchaser of certain shares of a limited company at a court-sale in execution of a decree against the....
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....stitute a suit cannot be considered to be taken away merely because of some statutory provisions. The view of the Madras High Court as expressed in T.A.K. Mohideen Pichai Taraganar ( supra), has, however, not been agreed to in its later decision in Avanthi Explosives P. Ltd. v. Principal Subordinate Judge, Tirupathi reported in [1987] 62 Comp. Cas. 301 (AP). Thus, the law, laid down in Manilal Brijlal ( supra), is still adhered to by the Madras High Court. 153. What emerges from the above discussion is this : when right to sell 1 shares has to be liberally construed, a restriction on such a right has to be strictly construed. Consequently, the directors may, in a given case, not be incorrect in allowing transfer of share to an outsider by rejecting the preemptive right of another shareholder to buy such share if such a decision is not contrary to the conditions embodied in the articles of association or if such a decision of the directors subserves the public interest, for even a private company, in the light of the provisions of sections 397 and 398, is required to adhere to the requirements of public interest irrespective of the fact as to whether the articles of association s....
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....tive right and not seek to enforce it. That such a right can be waived or modified is recognised at paragraph 171 of Sangramsinh P. Gaekwad's case (supra). Thus, a transfer of share, which may be in violation of the articles of association, would not be void ab initio, but only voidable. 157. What follows from the above discussion, in the light of the decision in Sangramsinh P. Gaekwad ( supra), is that the pre-emptive right can be waived or modified. Thus, transfer of shares by a shareholder to an outsider, in denial of the pre-emptive right of any other shareholder to buy such share, is not void ab initio ; rather, such a violation would make the transaction voidable and can be interfered with by the court at the option of the aggrieved shareholder. If an individual shareholder can have the right to waive his pre-emptive right to buy shares, it logically and as a corollary, follows that the shareholders, in general too, can take a collective decision to sell shares outside the company. Such a decision cannot be said to be ultra vires, for, when the shareholders can waive their right to buy shares, the logical effect would be that such a decision is within the competence of....
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....eated to be a decision taken in public interest as envisaged in sections 397 and 398 of the Companies Act, 1956, particularly, when the decision, so taken, by the shareholders has been acted upon by the board of directors, then, the decision to sell the shares of the appellant-company cannot be said to be in violation or contravention of the provisions of sections 397 and 398. The plaintiff is as much bound by this decision as any other shareholder, for, such a decision is not per se ultra vires inasmuch as the shareholders have, as already indicated above, inherent right to waive their pre-emptive right to buy shares and the pre-emptive right is enforceable only at the option of the person, who may have such pre-emptive right. Thus, the shareholder's decision to sell their shares, which forms the subject-matter of the suit, is prima facie a valid decision and such a decision is binding on the appellant-company and also on all its shareholders including the plaintiff-respondent. If a minority shareholder, such as, the plaintiff-respondent, feels that the decision, so taken, is oppressive or not in public interest, his remedy lies in invoking the provisions of sections 397 and 3....
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....rivate company. 162. Bearing in mind the position of law as indicated above, when I turn to the articles of association of the appellant-company, what attracts the eyes is that, the articles of association do not impose any absolute restrictions on the transfer of shares to an outsider by shareholders of the appellant-company. This inference is borne out of a reading of the provisions made in the articles of the appellant-company. The relevant provisions read : "7(b). A shareholder may at any time transfer a share to his or her father, mother, wife or husband, children, grandchildren or any male agnatic relation within three degrees or daughter-in-law, sister, sister's son or to anyone of the existing shareholders of the company without previous sanction of the directors, provided that the transferee is not an insolvent or otherwise incapable of discharging his or her obligations as a shareholder. (c) In case a shareholder desires to transfer his/her share or shares to a person other than the persons mentioned in the last proceeding clause, he/she (hereinafter called the selling member) shall give a notice of his/her intention in writing to the managing director of the....
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....e procedure prescribed by sub- clauses (c) and (d) of clause 7 of the articles of association. 164. The scheme of restriction, as conceived by sub-clauses (c) and (d), afore mentioned, is this : A shareholder, who is desirous of transferring his shares to a person other than those, who are mentioned in clause 7(b) aforementioned, is required to give a notice, in writing, to the managing director of the appellant-company specifying the number of shares he or she proposes to transfer and the value he or she puts on his or her share. Upon receipt of the notice, the director shall, within two months from the date of receipt of such notice, find the purchaser from amongst the share holders for the share notified for sale, at a price not less than the value of the share so put, and as soon as they are able to secure a desirable purchaser at the price, as assessed by the shareholder, who desires to sell share, the directors shall notify the fact to the selling member, who shall be bound, upon payment of the price within 14 days of the date of the notice, issued by the directors, to the selling member, to transfer the share to such purchaser, and complete the transaction. If, however, t....
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....he shareholders, in general of the appellant-company, to purchase the share offered for sale by one or more of the shareholders. In other words, the pre-emptive right of the shareholders, under the scheme of the articles of association of the appellant-company, comes into existence only when the conditions, as specified in sub-clause (i) are not satisfied or even when such conditions are satisfied, the board of directors decide, in their discretion, to give an option to the shareholders of the appellant-company to exercise their right of pre-emption. 168. What is curious to note is that in the plaint and in the application for injunction, the respondent relied upon sub-clauses (b), (c) and (d ) of clause (7) of the articles of association of the appellant-company, but has not referred to sub- clause (i) of clause (7). 169. What is all the more curious to note is that it is not even contended that the board of directors have decided to act upon the decision of the share holders as expressed by them in the extraordinary general meeting of the appellant-company mala fide or only to defeat the purported pre-emptive right of the appellant to purchase shares. 170. Coupled with t....
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....mentioned. It is a canon of statutory construction that where general words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the same general class as those enumerated." 175. The Privy Council in Bisheswar v. Parath Nath reported in AIR 1934 PC 213, had the occasion to interpret the words "or for any other reason", occurring in Order 47, rule 1 of the Code of Civil Procedure, 1908 and prescribed the ground upon which an application for review can be made. Interpreting what the words "any other sufficient reason", mean the Privy Council pointed out that the words must be taken as meaning "a reason sufficient on grounds at least analogous to those specified immediately previously". Thus, the expression, ejusdem generis, as observed by the Supreme Court in Siddheshwari Cotton Mills P. Ltd. v. Union of India, AIR 1989 SC 1019, signifies a principle of construction, whereby words in a statute, which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as preceding them. If a list or string....
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....company, public or private, the court cannot ignore the requirement of public interest, while considering the question as to whether the plaintiff had been able to make out a prima facie case for the purpose of entitling him to obtain injunction as has been sought for by him. 179. Beneficial for the public cannot be said to be different from, inconsistent with or contrary to, public interest. Though the decision to sell shares to an outsider is, primarily, in the interest of the shareholders and the officers and members of the appellant-company, the fact remains that a tea estate, unlike other industries, provides employment not only to the individual workers, but employment is almost hereditary in nature inasmuch as it is the legal representative of a labour, who, ordinarily, succeeds and takes over the job as a legal representative of a retired or deceased labour. Whole of the family, in one way or other of a labour, survives on the employment in the tea estate itself. Thus, the situation of the labourers, in a tea estate, is substantially different from other industries, where employment is not at all hereditary in nature ; whereas in the tea estate, the employment is almost ....
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....vil suit, granting of injunction or other similar orders, more particularly of an interlocutory nature, is equally discretionary. The courts have to weigh the public interest vis-a-vis the private interest while exercising the power under article 226-indeed any of their discretionary powers. It may even be open to the High Court to direct, in case it finds finally that the acquisition was vitiated on account of non-compliance with some legal requirement that the persons interested shall also be entitled to a particular amount of damages to be awarded as a lump-sum or calculated at a certain percentage of compensation payable. There are many ways of affording appropriate relief and redressing a wrong ; quashing the acquisition proceedings is not the only mode of redress. To wit, it is ultimately a matter of balancing the competing interests. Beyond this, it is neither possible nor advisable to say. We hope and trust that these considerations will be duly borne in mind by the courts while dealing with challenges to acquisition proceedings." 181. In the present case, there is no denial of the fact that the appellant-company has sustained huge loss and the losses are mounting by lea....
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....ransfer forms signed by them immediately on the above. It may kindly be noted that the proposed buyer company has requested us to submit the original shares certificates for verification in order to clear the bank dues, all outstanding liabilities including the market liabilities and net share money to each shareholder by individual A/C payee demand drafts. They will not allow any cash payment to any party or person. The buyer has decided to clear 100 per cent, of all the liabilities outstanding as on 31-1-2008 and net share money to the shareholders immediately by A/C payee demand drafts before taking over possession within 3rd week of February, 2008. Hence, they have requested us to produce the original share certificates with the individual transfer forms signed by the shareholders of our company to enable them to complete the transaction without loss of time. They have also agreed to reimburse our running expenses of the tea estate for the month of February, 2008, You are, therefore, requested to submit your original share certificates along with the share transfer form signed by you in favour of the proposed buyer whose name will be disclosed by the managing director at ....
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....bsp; Amount in current account with SBI, Dergaon 15,000.00 Value of stores in stock 93,000.00 Total 19,13,451.00 Advance to Tea Board (earnest money) 90,100.00 Income-tax refundable 39,000.00 Agriculture income-tax refundable 55,000.00 Total 1,84,100.00 This amount is receivable and being processed by us Rs. 4,29,26,000.00 Rs. 7,00,000.00 (estimated expenditure of February 2008, to be reimbursed to us by the purchaser) Rs. 19,13,451.00 (Refund of total of security money advances, FDRS's amount, etc. (as above) to be refunded by the purchaser.) Gross total amount Rs. 4,55,39,451.00 Less: Liability amount Rs. 2.31,10,000.00 (including bank's dues, etc., etc., as above) to be paid by the purchaser subject to deduction from consideration money Approx. net. amount to be paid by the purchaser to each shareholder by individual A/C payee D. D. subject to the production of original share certificates with transfer forms signed by individual shareholder. Rs. 2,24,29,45 :- 23,760 Nos of shares = Rs. 944.00 per share (Approx. net consideration money per sh....
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....rticles of association, would be a contract to which the company as well as the shareholders are parties. 184. The question, which, now, stares at us, is : Whether the present suit is at all a suit for specific performance of a contract ? The answer to this question is not very far to seek. If the reliefs, which the plaintiff has sought for (and which I have already reproduced at paragraph 10), are carefully examined, it leaves no room for doubt that the plaintiff-respondent's suit is not a suit for specific performance of contract of his alleged pre-emptive right to buy shares, which the remaining shareholders of the appellant company have decided to sell. 185. The plaintiff-respondent, under clause (f) of paragraph 20 of the plaint, has sought for a decree of mandatory injunction directing the defendants to sell and transfer the shares of defendant No. 1 in favour of the plaintiff- respondent from those members, who intend selling their shares and also to deliver possession of Radhabari Tea Estate unto the plaintiff. Is the plaintiff entitled to a decree of mandatory injunction, as has been sought for by him, without seeking specific performance of his alleged pre-empti....
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....t and regarding which positive and negative declarations have been sought for, in clauses (a) and (b) of paragraph 20 of the plaint, is based on sub-clause (b) of clause 7 of the articles of association. This right, learned trial court appears to have failed to notice, is circumscribed by clauses 7(c), 7(d) and 7(i ) of the articles of association. 190. As I have already discussed above, the plaintiff's right to buy share, under clause 7(b), is a qualified right and this right comes to the fore only when a shareholder's decision to sell share outside the company does not fall under clause 7(i) or when the board of directors, notwithstanding the power given to them under clause 7(i), decide not to allow the selling member to sell his share outside the company without giving an option to buy such share to such a member, who may be interested in buying such share. 191. Thus, the contract of pre-emption, if any, is, in the present case, a contingent contract inasmuch as the right to buy share would arise only when a shareholder's decision to sell his share falls outside clause 7(i) and/or when the board of directors does not permit a selling member to sell his share o....
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....nd embedded, in this principal contract, is the collateral contract of contingency. Sections 32, 33, 34 are various contingencies contemplated in the Indian Contract Act, 1872. 194. So far as the performance of contract is concerned, the courts can direct specific performance only in a concluded contract. The principal contract, in a contingent contract, cannot be specifically performed unless the contingency arises and, therefore, it can be said that till the contingent condition is fulfilled, the contract is not a concluded contract. 195. In the present case, when the plaintiff-respondent does not have absolute right to buy share in preference to an outsider, it clearly follows that his right is dependant on the fact as to whether a shareholder's decision to sell share falls within the ambit of clause 7(i) or not and whether the board of directors does or does not permit the shareholder concerned to sell his share to an outsider. When the plaintiff-respondent's case is dependant on fulfilment of the conditions precedent embodied in clause 7(i), it cannot, merely on the basis of the provisions contained in clause 7(b) of the articles of association of the appellant-c....
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.... the plaintiff-respondent from those members, who intend to sell their shares, treating his (plaintiff-respondent's) alleged preemptive right to buy shares as an absolute (and not conditional) right. This is, again, a positive relief, which the plaintiff-respondent is seeking. In the face of these reliefs, which the plaintiff-respondent has sought for, it is clear that the plaintiff-respondent, if his case is correct, was entitled to seek specific performance of the contract of his alleged right of pre-emption, but he chose, for reasons best known to him, not to seek the relief of specific performance of contract. In such circumstances, a suit for mere declaration of the plaintiff-respondent's alleged right is prima facie not maintainable. 198. What logically follows from the above discussion is that when no declaratory decree can be given in favour of the plaintiff as has been sought for by him, the question of granting any preventive injunction, interim or otherwise, does not arise, particularly, when the injunction, in the present case, is only a consequential relief. This apart, when (as already held above) no specific performance of the alleged pre-emptive right of ....
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....s have no right to sell or transfer shares of the appellant-company to any outside third party depriving a willing and desirous shareholder from purchasing shares from those members, who seek to sell their shares. Thus, the present suit is a suit for declaration of plaintiff-respondent's alleged preemptive right to buy share and a suit for injunction. To such a suit, which is not a suit for specific performance of contract, a shareholder (had the suit been, otherwise, prima facie maintainable) was not a necessary party and the suit against the company would have been prima facie maintainable. It is in this, context that Order XXXIX, rule 5 needs to be viewed inasmuch as Order XXXIX, rule 5 clearly lays down that when an injunction is passed against a company, the shareholders, even if they were not parties to the suit, would be bound by the order of injunction, whereby the personal action of the members and officers of the Corporation are sought to be restrained. 203. The appellants are also-correct when they point out that the learned trial court has assigned no reasons for coming to the conclusion that there is a prima facie case for trial or that the balance of convenienc....
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.... but also its members and officers, whose personal action the order of injunction seeks to restrain ; whereas the present suit, in effect, seeks, indirectly and with the help of mandatory injunction, specific performance of contract by forcing the shareholders to sell their shares to the plaintiff-respondent. In such a suit, since no effective decree can be passed in the absence of the shareholders concerned, they were necessary parties and in their absence, no injunction could, have been granted. 206 There can also be no doubt, as contended on behalf of the appellant, that it is the duty of the court, particularly, when it is dealing with the appeal that the developments, which are subsequent to the passing of the impugned order, be taken note of. Reference made by Dr. Saraf to the case of Pasupuleti Venkateswarlu v. Motor and General Traders reported in [1975] 1 SCC 770, is also not misplaced inasmuch as in this decision, the apex court at paragraphs 4 and 5, has observed as under (pages 772 and 773) : "4. We feel the submissions devoid of substance. First about the jurisdiction and propriety vis-a-vis circumstances which come into being subsequent to the commencement of the p....
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....r review but to make such disposition of the case as justice requires. And in determining what justice does require, the court is bound to consider any change, either in fact or in law, which has supervened since the judgment was entered.' and said that that view of the court's powers was reaffirmed once again in the then recent case of Minnesota v. National Tea Co. [1940] 309 US 551, Sulaiman, J., in the same case relied on English cases and took the view that an appeal is by way of a re-hearing and the court may make such order as the judge of the first instance could have made if the case had been heard by him at the date on which the appeal was heard (emphasis ours). Varadachariar, J. dealt with the same point a little more comprehensively. We may content ourselves with excerpting one passage which brings out the point luminously (at page 103) : 'It is also on the theory of an appeal being in the nature of a re-hearing that the courts in this, country have in numerous cases recognised that in moulding the relief to be granted in a case on appeal, the court of appeal is entitled to take into account even facts and events which have come into existence after the....
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....ired to be taken into account, it clearly follows that the plaintiff- respondent has received the offer to purchase shares at the rate of Rs. 800 per share with all assets and liabilities of the appellant-company, but he refused to buy the shares. As a measure of abundant caution, even this court has enquired from learned counsel for the plaintiff-respondent if he was willing to buy shares at the rate of Rs. 800 per share. Mr. Ali, learned counsel for the plaintiff-respondent, has not been able to assert that the plaintiff is willing to buy shares at the rate of Rs. 800 along with the assets and liabilities of the appellant-company. In such circumstances, the shareholders cannot be restrained from selling shares to an outsider at the rate of Rs. 800 per share nor can the appellant-company be restrained from allowing the shareholders to sell their shares at the rate aforementioned along with the assets and liabilities of the appellant-company. Any restriction, if imposed in this regard, may prove disastrous not only for the company, but the public at large, for, a large number of lives are depending on the outcome of this appeal. 210. The discussions, held above, as a whole, may ....