TMI Blog1993 (1) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... s a company, incorporated under the laws of the United Kingdom. The first plaintiff holds 50% of the share capital of a company called "Associated Biscuits International Holdings Ltd." (for short, "ABIH") which is also incorporated under the laws of the United Kingdom. ABIH holds 100% of the share capital of a company called "Associated Business International Ltd." (for short, "ABIL") a company also incorporated under the laws of the United Kingdom. ABIL in turn holds directly or indirectly through Nat West Nominees Ltd. (for short, "Nat West) 38.15% of the issued capital of the seventh defendant-company. The second plaintiff though not a shareholder is a director of the seventh defendant-company having been nominated on the board of directors of the seventh defendant by the first plaintiff. The third plaintiff holds 294 shares in the seventh defendant-company. Defendants Nos. 1 to 6 are directors of the seventh defendant-company. The first defendant is the chairman of the board of directors of the seventh defendant-company. The second defendant is the wife of the first defendant. Apart from defendants Nos. 1 to 6, the board of directors of the seventh defendant-company comprises M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 11 on the other hand, defendants Nos. 1 to 6 and 12 be ordered and decreed to pay the sum of US dollar 8 million equivalent to Rs. 25 crores to the seventh defendant. The plaintiffs have filed the suit, inter alia , praying for a declaration that defendants Nos. 1 to 6 have vacated their office as directors of the seventh defendant-company; for an order restraining defendants Nos. 1 to 6 from acting as directors of the seventh defendant company; for an order directing defendants Nos. 1 to 6 and 12 to furnish particulars and accounts of the transactions undertaken by the seventh defendant with defendants Nos. 9, 10 and 11; for accounts of the loss caused by defendants Nos. 1 to 6 and 12 to the seventh defendant and the wrongful gains that they have allegedly secured for themselves; for an order and decree against defendants Nos. 1 to 6 and 12 for payment of such amounts as compensation and damages as may be ascertained; for an order and decree against defendants Nos. 1 to 6 and 12 for payment of the sum of US dollar 8 million equivalent to Rs. 25 crores to the seventh defendant; for interim and ad interim reliefs specified in the plaint filed. It may be mentioned here that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of plaintiffs Nos. 2 and 3. However, in view of the objection taken on behalf of defendants Nos. 1 to 7 and 12 to the effect that where more persons than one joined as co-plaintiff in a suit, each of the plaintiffs has not got an individual right of engaging his own advocate or counsel and conducting the case independently of the other plaintiffs, Mr. Ram Jethmalani, while conceding the said proposition, made a statement to the effect that his appearance along with Mr. Nariman, Mr. Chinoy, Mr. Seervai and Mr. Diwan be recorded to show cause for and on behalf of all the plaintiffs. Mr. Mehta on behalf of defendants Nos. 1 and 2, Mr. Vahanvati on behalf of defendants Nos. 3, 4, 5, 6 and 12 and Mr. Chagla on behalf of the seventh defendant have submitted that plaintiffs Nos. 1 and 2 not being shareholders of the seventh defendant company and their names admittedly not being entered on the register of members of the seventh defendant company as holders of shares, have no locus standi to file and/or maintain the suit and as such, their names are liable to be struck out and/or deleted from the cause title of the plaint filed in the suit under the provisions of Order 1, rule 10(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inoy further submitted that a director is bound to protect the interest of the company. His acquiescence in wrong doing lands him in personal liability. A director, to save himself from personal liability, must take all steps including taking legal action. When a company director files a suit, he is not enforcing a right, he is performing a duty. It is also submitted that Order 1, rule 10 of the Civil Procedure Code has nothing to do with cause of action or want of it. The rule is a part of Order 1, the heading of which is "parties to suit". This expression is not synonymous with a plaintiff who has no cause of action or a plaintiff wrongly suing. The expression "improperly joined" in Order 1, rule 10(2) refers to the joinder of a plaintiff in breach of Order 1, rule 1. Hence, in the submission of Mr. Chinoy, Order 1, rule 10(2) applies not where a plaintiff's suit is to be dismissed but where a plaintiff has to be dismissed from the suit. It is further submitted that on any view being taken both plaintiffs Nos. 1 and 2 are necessary and proper parties, and they have been properly joined in the suit as the plaintiffs. Order 1, rule 1 and Order 1, rule 10(2) of the Civil Procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a right to the reliefs claimed in the suit, their names from the cause title cannot be struck out. However, if plaintiffs Nos. 1 and 2 have no right to the reliefs claimed in the suit, their names have got to be struck out from the cause title at this stage since it can be done at any stage of the proceedings. Order XIV, rules 1 and 2 of the Civil Procedure Code do not and cannot render statutory provisions and wordings contained in Order 1, rule 10 and Order VI, rule 16 of the Civil Procedure Code nugatory. In the case of Dhartipakar Madan Lal Agarwal v. Shri Rajiv Gandhi, AIR 1987 SC 1577, it has been held by the Supreme Court that pleadings can be struck out at any time under Order VI, rule 16 of the Civil Procedure Code. This leads us to consider as to whether the first plaintiff and/or the second plaintiff are the shareholders and/or members of the seventh defendant company having right to the reliefs claimed in the suit. Under section 2(27) and section 41 of the Companies Act, 1956 (for short, "the said Act"), a member is defined. Section 2(27) provides as follows: " 'member', in relation to a company, does not include a bearer of a share-warrant of the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person and any right that is vested in him. As held by the Supreme Court in the case of Narandas Karsondas v. S.A. Kamtam, AIR 1977 SC 774, in India, there is no distinction between legal and equitable estates. The law of India knows nothing of that distinction between legal and equitable property in the sense in which it was understood when equity was administered by the Court of Chancery in England. Relying upon Rani Chhatra Kumari v. Mohan Bikram Shah, AIR 1931 PC 196, it has been held that under the Indian laws, there can be but one owner that is, legal owner. In Killick Nixon Ltd. v. Bank of India [1985] 57 Comp. Cas. 831 , a Division Bench of this court has held that under section 41(2) of the said Act, a person whose name is entered in the register of members shall be a member of the company. The contentions of the plaintiffs that the court can take cognisance of a trust as per Dharwar Bank v. Mahomed Hayat [1931] 1 Comp. Cas. 199 (Bom); 33 BLR 250 is contrary to section 153 of the said Act which has an overriding effect because of section 9 of the said Act. In any event, there is no trust qua plaintiffs Nos. 1 and 2. No such trust can be said to have arisen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not or would not institute proceedings in their corporate character. Further held that a shareholder could not ask the court to injunct directors from acting as such. In Pender v. Lushington [1877] 6 Ch 70, it was held that "member" means "member for the time being of the company . . . and it means prima facie a registered shareholder or stock holder. . . so that a member is a man who is on the register . . . The result appears to me to be manifest, that the company has no right whatever to enter into the question of the beneficial ownership of shares". In the said case, it was held that a meeting of the company should be called to decide whether or not the company's name should be used as the plaintiffs. In MacDougall v. Gardiner [1875] 1 Ch 13, it was held that "if the thing complained of is a thing which in substance the majority of the company are entitled to do or if something has been done irregularly which the majority of the company are entitled to do legally . . . there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called and then ultimately the majority gets its wishes". It was further held that "nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the seventh defendant company is if the shareholder can show that wrongdoers are in control of the seventh defendant company and the seventh defendant company would hence be unable to maintain any action. In the facts of the present case, the seventh defendant had at the board of directors' meeting held on 30th November, 1992, decided to take all necessary steps required to ascertain any alleged loss caused to the seventh defendant and furthermore to recover such loss. Neither in the plaint nor in the affidavit-in-reply to the chamber summons filed by the plaintiff, it is contended that wrongdoers are in control of the seventh defendant company. Since plaintiffs Nos. 1 and 2 are not shareholders of the seventh defendant, they are not entitled to maintain the suit which can at the highest be maintained only by a shareholder if the same falls within the exceptions to the rule in Foss v. Harbottle [1843] 2 Hare 461; [1843] 67 ER 189. On behalf of the plaintiffs, Mr. Chinoy has fairly conceded that there is no Indian or English authority which allows a non-shareholder/member to maintain a derivative action. However, efforts were made to justify the action of plaintiffs Nos. 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required by section 187C(1) of the said Act. It may also be stated that the claim of the plaintiffs that the first plaintiff is the real owner of the shares standing in the name of ABIL is directly counter to section 4(1) of the Benami Transactions (Prohibition) Act, 1988, which reads as under: "4. Prohibition of the right to recover property held benami (1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property." Mr. Chinoy, learned counsel for the plaintiffs, submitted that in the facts of the case, all that was required was to lift the corporate veil of the seventh defendant company to find out who the real or de facto shareholders of the seventh defendant company were. However, in view of the fact that neither the first plaintiff nor the second plaintiff are shareholders of the seventh defendant company, reliance placed by Mr. Chinoy on the averments made particularly in paragraphs 2, 4, 9 and 12( a ) of the affidavit of Nicolas Moulin filed in reply to the chamber summons can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titude that law had originally adopted towards the concept of the separate entity or personality of the Corporation. As a result of the impact of the complexity of economic factors, judicial decisions have sometimes recognised exceptions to the rule about the juristic personality of the Corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the Corporation may be confined more and more." In support of his submission that this court should "remove the corporate veil", Mr. Chinoy has put reliance on the case of State of U.P. v. Renusagar Power Co., AIR 1988 SC 1737; [1991] 70 Comp. Cas. 127 wherein the Supreme Court observed that the doctrine of lifting the corporate veil is expanding in the context of modern jurisprudence. In para 63 thereof, it has been observed as under (at page 159 of 70 Comp Cas): "It is high time to reiterate that, in the expanding horizon of modern jurisprudence, the lifting of the corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tests laid down in Escorts Ltd.'s case, AIR 1986 SC 1370 apply to the instant case wherein the first plaintiff is seeking to get locus standi to maintain the present suit by asking this court to lift not only its own corporate veil but also the corporate veil of ABH, ABIL, Nat West. The Supreme Court in Escorts Ltd.'s case, AIR 1986 SC 1370 has cited with approval Pennington on Company Law wherein he has stated (at page 1417): "Four inroads have been made by the law on the principle of the separate legal personality of companies. By far the most extensive of these has been made by legislation imposing taxation. The Government, naturally enough, does not willingly suffer schemes for the avoidance of taxation which depend for their success on the employment of the principle of separate legal personality, and in fact legislation has gone so far that in certain circumstances taxation can be heavier if companies are employed by the taxpayer in an attempt to minimise his tax liability than if he uses other means to.give effect to his wishes. Taxation of companies is a complex subject, and is outside the scope of this book. The reader who wishes to pursue the subject is referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismanagement under sections 397 and 398 of the said Act. He has no right to receive notice of annual general meetings unless he is a member. He cannot form part of a quorum and he has no right to vote. He has no right to apply to the Central Government for investigation of the affairs of the company. He has no right to dividends declared. He acts as a delegate of the board and not in his own rights. He is not entitled to inspection of minutes book of a general meeting of the company. He is not an agent or a trustee of the shareholders. A non-proprietary director has the following rights under the said Act: ( a )to be heard prior to his removal; ( b )to receive notice of board meetings; ( c )to be given notice of the resolution proposed to be passed by circulation; and ( d )to inspect books of account. A non-proprietary director is entitled to sue the company only in certain cases. In Pulbrook v. Richmond Consolidated Mining Co. [1878] 9 Ch 610, it was held that where a director who is improperly and without cause excluded by his brother directors from the board, he is entitled to an order restraining such directors from so excluding him. The second plaintiff is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge Ltd., AIR 1975 SC 1810, the plaintiff had filed a suit claiming a declaration that a lease executed in favour of the defendant therein in respect of a theatre by its former owners was void and ineffective against the plaintiff's rights under decrees obtained in other suits in execution whereof the said theatre was attached. The Supreme Court on the facts held that the plaintiff possessed sufficient legal interest in the theatre as a mortgagee as well as an assignee of a decree holder who had got the property attached before he filed his suit, so as to enable him to sue for the declarations he sought. In the facts, I hold that plaintiffs Nos. 1 and 2 have no right to the reliefs claimed in the suit and their names are liable to be struck out from the cause title even at this stage. Order VI, rule 16 of the Civil Procedure Code reads as under: " Striking out pleadings: The court may at any stage of the proceedings order to be struck out or amended any matter in any pleading ( a )which may be unnecessary, scandalous, frivolous or vexatious, or ( b )which may tend to prejudice, embarrass or delay the fair trial of the suit, or ( c )which is otherwise an abuse of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the schedule annexed to the chamber summons do not constitute cause of action formulated in the plaint nor do the same support the cause of action set out in the plaint filed nor would the same form part of evidence in chief which the plaintiffs would be bound to lead for the purpose of obtaining the reliefs asked for nor are the same necessary or relevant or germane to the reliefs sought in the suit. Such statements and averments are irrelevant, unnecessary, scandalous, frivolous and tend to prejudice or embarrass the contesting defendants and as such are liable to be struck out from the plaint at this stage under the provisions of Order VI, rule 16 of the Civil Procedure Code. In the case of P.D. Shamdasani v. Central Bank of India Ltd. ( No. 2 ) , AIR 1944 Bom 197, Coyajee J. of our court formulated the following test for considering an application of this kind, "( a )Whether the allegations made constitute the cause of action formulated in the plaint? ( b )Whether the allegations made support the cause of action in the pleading? ( c )Whether the allegation or the statement could form part of the evidence-in-chief which the plaintiff would be bound to lead for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rapolated to apply to Order I, rule 10 or Order VI, rule 16. In the case of Millington v. Loring [1880] 6 QB 190, on the facts, it has been held that the facts alleged in the plaint were "material facts" and as such were properly pleadable. It has been further held that the statements neither being scandalous nor tending to prejudice or embarrass the fair trial of the action could not be struck out. The case of Dyson v. Attorney-General [1911] 1 KB 410 also relied upon by Mr. Chinoy deals with striking out pleadings as disclosing no cause of action. The provisions of the Rules of Supreme Court, 1883, mentioned in Dyson's case are equivalent to Order VII, rule 11 of the Civil Procedure Code. It was in this context that the court had taken the view that it could not dismiss an action because it thinks that the plaintiff would not succeed and cannot be driven from the judgment seat in this manner. In the instant case, no relief under Order VII, rule 11 of the Civil Procedure Code has been claimed in the chamber summons and as such, the ratio laid down in Dyson's case has no applicability. Reliance has also been placed by Mr. Chinoy on the Division Bench judgment of this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned here that the vakalatnama filed in the suit has been signed by the said R. A. Shah for and on behalf of plaintiffs Nos. 1 and 2 and as aforesaid, the said vakalatnama has also been accepted by the said Mr. R.A. Shah in his capacity as the partner in the said firm of Crawford Bayley and Co. Although under the provisions of the Code of Civil Procedure as applicable to this court, the solicitors and/or advocates practising in this court can be appointed as power of attorney holders, yet the question which arises for consideration is should an advocate or solicitor sign the vakalatnama, plaint and verify the plaint for and on behalf of the same plaintiffs for whom he also appears in the suit in which the plaint and the vakalatnama are filed. Recently, this question has been extensively considered by Dhanuka J. in his well considered judgment in the case of Oil and Natural Gas Commission v. Offshore Enterprises Inc. delivered on 18th December, 1992 (Arbitration Petition No. 210 of 1989 in Award No. 66 of 1989). As held by Dhanuka J., advocates in their personal capacity are enjoined to act with complete impartiality and detachment and not entitled to identify themselves w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaint. It has further been held that in the circumstances the plaintiff should be required to verify the plaint himself so that he may accept full responsibility for it under the law. In the case of Consolidated Foods Corporation v. Brandon and Co. Pvt. Ltd. [1960] 62 BLR 799, the aforesaid position has been reiterated. In my view, the present verification of the plaint is contrary to the provisions of Order 6, rule 15 of the Code of Civil Procedure. However, it would be proper in the facts of the case to give an opportunity to the plaintiffs to have the plaint verified in accordance with law and in conformity with the provisions of Order 6, rule 15 of the Code of Civil Procedure if the plaintiffs so desire. On behalf of the plaintiffs, it is submitted that there has been delay on the part of defendants Nos. 1 and 2 in taking out the present chamber summons, which delay has been deliberately caused to avoid the hearing of the notice of motion which the plaintiffs had taken out in the suit. It is also submitted that the chamber summons is not maintainable and is liable to be dismissed. I find no substance in either of the submissions made on behalf of the plaintiffs. As afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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