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M Sreenivasulu Reddy Versus Kishore R. Chhabria

1999 (4) TMI 570 - HIGH COURT OF BOMBAY

Transfer of shares - Rectification of register on transfer - NOTICE OF MOTION NOS. 3120 OF 1997 AND 3932 OF 1998 AND CHAMBER SUMMONS NO. 1153 OF 1998 IN SUIT NO. 3910 OF 1997 WITH NOTICE OF MOTION NO. 184 OF 1999 IN SUIT NO. 297 OF 1999 - Dated:- 22-4-1999 - H. R. GOKHALE, J. F.S. Nariman, I.M. Chagla, Aspi Chinoy and J.P. Avasia for the Plaintiffs. Harish Salve, T. N. Subramanian, R. K. Krishnamurthi, Abeezar E. Faizullabhoy, Ranjit Bhonsale, Rafiq Dada, Arif Bookwala, V.R. Manohar, Sharukh K. .....

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the annulment thereof, particularly in the context of the breaches of regulations 9 and 10 which require a public announcement of the intention to acquire substantial shares in certain circumstances. The defendant Nos. 1 to 11, on the other hand, dispute the right of third parties like the plaintiffs to challenge such acquisitions, the rights of plaintiffs claimed to be based in common law and/or statute and as to whether the voting rights flowing from such shares can be injuncted by filing a s .....

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ndant No. 11 is one Mr. Madan D Chhabria (stated to be uncle of defendant No. 1). Defendant Nos. 2 to 10 are companies which are described in para 3 of the plaint as the companies owned and/or controlled by the 1st defendant. Defendant No. 12-Herbertsons Ltd. is a company engaged in manufacture and distribution of liquor. One Mr. Vijay Mallya is the chairman of this company. 3. Suit No. 3910 of 1997, inter alia, seeks to challenge the conversion of certain large number of debentures of defendant .....

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null and void, (b) it also seeks a direction that the register of membership of defendant No. 12 be appropriately rectified and the names of the disputed entrants be removed from the register. The two notices of motion bearing Nos. 3120 of 1997 and 3932 of 1998, which are taken out by the plaintiffs in this suit, inter alia, seek freezing of voting rights flowing from these disputed shares. They also seek appropriate orders in that behalf with respect to the annual general meetings of defendant .....

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h are acquired by the plaintiffs of the second suit. It seeks a declaration that the plaintiffs of the second suit are the beneficial owners of these shares. It is material to note that in the two notices of motion taken out in the first suit, no injunction has been sought with respect to these unregistered shares of defendant Nos. 3, 7 and 8 (plaintiffs of the second suit) though the final prayer in that suit very much covers them. There is, however, an interim prayer with respect to unregister .....

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999 seeks a restraint on the defendants thereof from preventing the plaintiffs from attending the AGM on 30-12-1998 and exercising voting rights flowing from the concerned shares. This second suit can, therefore, be generally described as a sort of a counter suit. Hence for the sake of convenience, the submissions of the rival parties are considered hereinafter initially in the context of the first suit. Thereafter whenever it is necessary, there is a reference to the second suit and it is so st .....

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d and paid-up capital - The issued and paid-up capital of this company is said to be ₹ 9,52,23,230 divided into 95,22,323 equity shares of ₹ 10 each. Para 3 of the plaint informs that Mr. Vijay Mallya owns 23,71,422 shares in this company representing 24.90 per cent of the subscribed capital as on 31-3-1997. This ownership is by himself and through the companies under his control and/or his nominees. (c) Activities of the company - It is further stated that the company was initially .....

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ian market with sales in excess of 5 million cases. It is also stated that the company manufactures other products of liquor under its own brand. The sales/turnover as per the annual account unanimously approved from year to year was of order of ₹ 219.57 crore in the year 1997-98. (e) Dividend - The company is stated to have declared the dividend of 20 per cent in the year 1992-93 and 1993-94 and thereafter for 4 years beginning from 1994 it has declared the dividend of 25 per cent. (f) Wo .....

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veral years and they are registered shareholders of 4,23,950 equity shares representing 4.45 per cent of the subscribed capital. Further it is stated in para 8 that the plaintiffs have over the years, invested vast sums of money on distribution, marketing and recently on the production of various products of Herbertsons. As an instance, it is informed that in the State of Tamilnadu, the plaintiff group has spent an amount of over ₹ 10 crore from 1985-86 onwards to promote and establish the .....

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es of production and bottlling of liquor exclusively for the UB group including defendant No. 12-company. In paras 14 and 17 of the plaint, it is stated that the plaintiffs are the valuable holders of rights of property and it is the breach thereof which has led them to file the present suit. Shareholding of defendant Nos. 1 to 11 prior to the acquisition disputed in the suit 7. It is stated in para 3 of the plaint that defendant No. 1 through defendant Nos. 2 and 6 to 10 initially acquired thro .....

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f 1997 disputes the acquisitions of shares by following defendants as detailed in paras 18(i) to (vi) read with paras 4 and 5 of the plaint: Acquisitions by conversion of debentures (i)Defendant No. 2 - Airdale Investment & Trading (P.) Ltd. - Acquiring 3,75,000 shares on 11-8-1995 due to the conversion of 75,000 fully convertible debentures purchased on 14-12-1993. Acquisition through open market (A)Whether transfer of shares is effected by defendant No. 12-company- (ii) (a)Defendant No. 3, .....

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s is not effected or registered by defendant No. 12-company. (iii)and (iv) Defendant No. 5, Shirish Finance & Investment - Stated to have acquired further 3,64,750 shares in May 1997, but the transfer of these shares was rejected by the board of directors of defendant No. 12 on 17-7-1997 for being in violation of the SEBI Regulations. (v)Defendant No. 3, IMFA Holdings (P.) Ltd. - Acquired further 54,000 shares on 22-10-1997 which constitute 0.56 per cent of the paid-up capital of defendant N .....

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hares preferred to in paras 4(a) to (d) of the plaint, which are same as the above mentioned clauses (i) to (iv) of para 18 quoted above, defendant No. 1 along with defendant Nos. 2 to 10 acquired a further 20.91 per cent shares taking the tally of the shareholding of defendant Nos. 1 to 11 to 46.91 per cent. If one adds the acquisitions in paras (v) and (vi) above to these acquisitions, the percentage of holding of defendant Nos. 1 to 11 goes up to 49.05 per cent. Allegation of concerted and cl .....

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onverting them from fully convertible debentures (FCDs) was done by defendant No. 2 acting in concert with defendant Nos. 1 and 3 to 11 and the same was done without making a public announcement. (b)In para 4(b) of the plaint, the allegation against defendant No. 3 is that it acquired the concerned shares from open market in concert with defendant Nos. 1, 2 and 4 to 11 without making a public announcement. (c)The allegation against defendant No. 4, as stated in para 4(c) of the plaint, is that i .....

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g a public announcement. (f)The allegation against defendant Nos. 7 and 8, as stated in para 4(f) of the plaint, is that the concerned acquisition of shares by them is in concert with defendant Nos. 1 to 6 and 9 to 11 without making a public announcement. 11. It is stated in para 12 of the plaint that an article which appeared in Economic Times of 15-7-1997 gave the information to the plaintiffs of the disputed acquisitions. Based on that article (ex. E to the plaint), the plaintiffs caused furt .....

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of 1997 ). These Regulations replaced the earlier mentioned SEBI Regulations of 1994 from 20-2-1997. It is stated in para 7 of the plaint that the continuing increase in the holdings of the group led by defendant No. 1 acting in concert with defendant Nos. 2 to 11 (defendant Nos. 2 to 10 of which are companies) is an attempt to takeover defendant No. 12-company. It is further stated that "this exercise is being conducted through clandestine transactions and constitutes undesirable practices .....

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f evidence in this behalf. Legal submissions 12. It is, therefore, stated in para 13 of the plaint that the defendants are proposing to acquire the shares referred to in paras 4(b) and (c) of the plaint in violation of the SEBI Regulations of 1994 (in force from 7-11-1994) and particularly regulations 9 to 11 and the shares mentioned in para 4(d) being in violation of the SEBI Regulations of 1997 (in force from 20-2-1997). The acquisition of voting rights by conversion of FCDs mentioned in para .....

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tled to the voting rights in respect of various shares which are mentioned in paras 4(a) to (d) which are also corresponding to paras 18(i) to (iv ) of the plaint. It is further stated at the end of this para that if such public announcement or offers, as required by law, were made, the plaintiffs would have given their competitive bid for acquisition of these shares, and that the plaintiffs continue to be ready and willing to do so. In this connection, it is further stated in para 21 of the pla .....

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king reliefs in the nature of declarations and injunction which fall within the jurisdiction of civil courts and are attributes of a court and which are beyond the powers conferred upon the SEBI Board or its adjudicating officers. In this connection, it is further stated during arguments that the interpretation of the law as also laying down the parameters of jurisdiction of the authorities under the SEBI Act would also be required in the present matter and the same should fall only within the j .....

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e more director who was appointed as an additional director. The plaintiffs apprehended that defendant Nos. 1 to 11 would exercise their voting power (increased in the above referred manner) to defeat these resolutions and it is, therefore, that they have been required to move this Court. They have sought declarations, as stated above, with respect to the illegality of the conversions and acquisitions of shares as mentioned in para 18 (referred to above) and the rectification of the membership r .....

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15. The first notice of motion bearing No. 3120 of 1997 is concerning the AGM which was to be held on 27-10-1997 and it seeks an injunction on exercise of voting rights flowing from the shares detailed in paras 18(i) to (iii) of the plaint. It also prays that the decisions to be taken in the said meeting be made subject to the orders of the Court. The affidavit in support of this motion reiterates principally what is stated in the plaint. 16. This notice of motion was first moved before my broth .....

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interim reliefs, it may be ordered and directed that all the proceedings and decisions taken at the annual general meeting of defendant No. 12 scheduled to be held on 27th October, 1997 will be subject to orders of this Hon ble Court on the present Notice of Motion." This AGM, which was to be held on 27-10-1997, proceeded peacefully and the resolutions moved were passed unanimously without any opposition, and by show of hands. The annual accounts and other decisions were also approved. The .....

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ated that the earlier AGM of 27-10-1997 was held smoothly, defendant Nos. 2 to 4 and 6 to 10 did not attend the meeting and the resolutions proposed were passed unanimously by show of hands and no one had demanded any poll. The plaintiffs had in the meanwhile become aware of the devices utilised by the defendants. The devices were that through a proprietary concern and/or companies of defendant No. 11, namely, Royal Wines & Tracstar Investments (P.) Ltd., large sums of money were shown as lo .....

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d inability to repay the above referred loans and allegedly offered the entire paid-up capital of these companies, as stated above, in discharge of the loans of ₹ 4.13 crore, ₹ 1.12 crore and ₹ 1.35 crore. It is, thus, submitted in para 12 of the affidavit in support of this second notice of motion that these acquisitions of shares of defendant No. 12 were made through defendant Nos. 3 to 5 from the funds of defendant No. 11 who is the uncle of defendant No. 1. In their support .....

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ich is a wholly owned subsidiary of defendant No. 12) is having a lot of mismanagement. This BDA Ltd. is said to be under the control of defendant No. 1. The plaintiffs referred to and relied upon the auditor s report of BDA Ltd. for the accounting years 1995-96 and 1996-97 and submitted in para 21 of the affidavit that the reports of the auditors bring out the following major infirmities : (a)The auditors were unable to obtain information and/or explanations which were required. (b)The balance- .....

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, ₹ 14.45 lakh were shown as due from its director and ₹ 66.67 lakh as cash in hand which could not be verified by the auditors. An amount of over ₹ 4 crore was shown as due from a company which was marketing its products, and ₹ 4.5 crore were shown as expenditure for defending ownership of a distillery. It is submitted that this expenditure was incurred to defend the ownership of defendant No. 1 on a distillery against Shaw Wallace Ltd. It is stated that all these expens .....

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n arrangement was arrived at between the parties and it was also agreed that it was not necessary to give any reasons in support thereof. It was agreed that item Nos. 2, 6 and 7 in the notice convening the AGM will be passed unanimously by show of hands. Item No. 1 would not be opposed by defendant Nos. 1 to 11. The votes cast by defendant Nos. 2 to 5, which were disputed, will be kept separately in a separate cover. An officer of the Court was directed to remain present at the time of the meeti .....

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general meeting (Exh. "A" to the affidavit dated 14th December, 1998) in support of this motion, shall be passed unanimously by show of hands and without the requirement of taking any poll. Item No. 11 would not be opposed by the defendant Nos. 1 to 11. (2) That all other items except those set out in clause (i) above shall be taken up for consideration by the meeting - The poll, if any, on those items shall be taken. The votes cast by the defendant Nos. 2 to 5, which are disputed as .....

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t of an officer of this Court, to be nominated by the Prothonotary and Senior Master of this court. (4) The separate covers in which the votes are to be kept as indicated above shall be sealed by the chairman of the meeting as also the officer who is to be present at the meeting and at the voting as directed above. (5) The officer of the court shall deposit the containers/envelopes with the Prothonotary and Senior Master." The aforesaid order was sought to be modified on 22-12-1998 and on h .....

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ide stamp No. 6264 on 28-12-1998. As stated earlier, defendant No. 12 in the first suit, namely, Herbertsons Ltd., and its chairman Mr. Vijay Mallya are the only two defendants in the second suit. The second suit is concerning a part of the subject-matter of the first suit, namely, unregistered shares acquired by the plaintiffs of the second suit. It seeks a declaration that the plaintiffs of the second suit are the beneficial owners of those shares. The plaintiffs of the second suit thereafter .....

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ssed by an agreement of the parties and hence no reasons were recorded. Relevant para 2 of this order reads thus : "2. The parties are agreed that for passing ad interim order in following terms on this motion, no reasons are necessary to be recorded. (1) The votes cast at the 61st annual general meeting of the 1st defendant-company by the plaintiffs in respect of the suit shares mentioned in prayer (a) of the plaint shall be kept separately, but not counted. The votes shall be kept in sepa .....

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said officer of the court shall deposit the containers/envelopes with the Prothonotary & Senior Master. (4) The Notice of Motion to be listed for hearing on 9th February, 1999 peremptorily along with Notice of Motion No. 3120 of 1997 and the second Notice of Motion in the said Suit No. 3910 of 1997. Both sides are agreed that they will go on with the matters and shall not seek any adjournment. All pleadings to be completed well in advance. Counsel appearing for the parties waive service. (5 .....

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r mentioned two motions in Suit No. 3910 of 1997. Mr. Dada, the learned senior counsel appearing for the plaintiffs in support of Notice of Motion No. 184 of 1999 made a statement on instructions that the plaintiffs of that motion were not pressing the same. 20. This second suit bearing No. 297 of 1999 is filed by companies shortly known as IMFA, Bethovan & Darrel. As far as the dispute regarding 54,000 shares of IMFA is concerned, it was stated that an Appeal No. 22 of 1998 is already filed .....

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e Court in Canara Bank v. Nuclear Power Corpn. of India Ltd. [1995] 84 Comp. Cas. 701. He submitted that these plaintiffs in the second suit will follow their remedy in the CLB, and, therefore, stated that they were not pressing the notice of motion moved in the second suit. 21. Mr. F.S. Nariman, the learned senior counsel appearing for the plaintiffs in the first suit, therefore, submitted that the order passed by Radhakrishnan, J. on 29-12-1998 would no longer survive and that it will also mea .....

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his submission. Merely because the motion is not pressed, it will not mean that the plaintiffs of the second suit could be prevented from attending and voting at the meeting (and their votes being considered) if they are otherwise entitled to the same. However, as noted earlier, the status of the shares, which are concerned in this motion, is the same as that of the shares acquired by defendant No. 5 of the first suit, namely, that they are all unregistered (and with respect to the unregistered .....

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s already been directed on 29-12-1998 as agreed amongst the parties that the three motions are to be heard together. In the circumstances, whatever is decided with respect to the shares of defendant No. 5 while deciding the two motions in the first suit, the same will in principle be applicable to these shares about which the motion is not pressed in the second suit. Hence, although this motion in the second suit is not being pressed, whatever that will be decided with respect to the shares of d .....

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Chhabria. Before filing this reply, the defendants had moved a chamber summons bearing No. 1153 of 1998 seeking further particulars from the plaintiffs to enable them to file an appropriate reply to the notice of motion. An affidavit in reply to the chamber summons was thereafter filed by the plaintiffs opposing the prayers therein. It is the submission of the defendants that the information made available to them through the plaint is a limited one and, therefore, although the reply to the moti .....

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d leave was sought to file a further affidavit after the necessary particulars became available. Inasmuch as the three notices of motion subsequently reached together for hearing before me and were argued at length without the chamber summons being disposed of first, while passing this order, I asked Mr. Bookwala and Mr. Madon, the learned counsel appearing for the defendants, as to whether they were pressing for an order on the chamber summons at this stage, and they stated that the motions be .....

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ets out the defence of all the defendant Nos. 1 to 11. Para 1 of the reply states that the plaint fails to disclose any cause of action against any of the defendants and the same is misconceived. It is further stated that the suit was not maintainable and ought to be dismissed in limine on various grounds which are stated therein and which are principally as follows: (a)It is stated that the plaintiffs were acting in abuse of the process of the Court and the suit was filed for subserving the int .....

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3 (54,000 shares) (which were not registered by defendant No. 12), these defendants had filed appeals under section 111A(2) before the CLB and which were numbered as Appeals Nos. 21 and 22 of 1998. It is stated that the CLB is a statutory authority with exclusive jurisdiction and hence the present suit was not maintainable. (d)The plaintiffs had no locus standi and were not in any event entitled in law to the reliefs sought in the suit. (e)The suit was not a derivative action and was not mainta .....

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td. and Mr. Vijay Mallya, they were not entitled for any equitable or interlocutory relief. (c)It was submitted that at least with respect to 41,03,241 equity shares aggregating to 43.09 per cent, defendant Nos. 2 to 10 were registered owners in respect thereof, and in law they could not be restricted or prevented from exercising any voting rights. (d)Defendant Nos. 2 to 10 own/hold over 50 per cent of the equity capital of defendant No. 12, of which 43.09 per cent is registered and any relief a .....

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fidential information include- (i)copies of statutory disclosures made by defendant No. 11 under the SEBI Regulations of 1997; (ii)precise details of shareholding of each of the companies under the control of defendant No. 11. 26. Thereafter there are various similar statements made in paras 6(c) to (g). However, what is stated in paras 6(h), (i ) and (j) is quite serious. In para 6(h) of the reply, a reference is made to the assessment order dated 31-3-1997 passed by the income-tax authorities .....

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6(j) of the reply, it is placed on record that whereas the plaintiffs are disturbed by the acquisitions by defendant Nos. 1 to 11 they have not referred or challenged the acquisition of 5.2 per cent of the equity shares of defendant No. 12 by the said Mr. Mallya through the companies under his control. 27. (i) Thereafter from para 7 onwards, defendant No. 11 has set out the facts which, according to him, are the true facts concerning all these purchases. In para 7(2), he has stated that defendan .....

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owned and controlled by defendant No. 1, his wife and daughters and remaining 20 per cent were owned by defendant No. 11 and his wife. Thereafter, it is stated in para 7(6) that the acquisition of shares by each of the six companies was less than 5 per cent of the equity capital of defendant No. 12 and hence the then prevailing listing agreement of the stock exchange and particular clause 40A thereof (containing provisions similar to the SEBI Regulations) was not attracted to these purchases. It .....

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, therefore, the shareholders of those companies were taken over by defendant No. 11, his wife and/or Seven Star Investments & Trading (P.) Ltd. (hereinafter referred to as Seven Star ), a company owned and controlled by defendant No. 12. (iii) As far as the acquisition of shares by defendant No. 3 is concerned, they had acquired the shares of defendant No. 12 in December 1995. In para 9 of the reply, it is stated that before defendant No. 11 acquired the entire shareholding of defendant No. .....

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the earlier directors including Ram Raheja resigned as directors. Much prior to that date, defendant No. 3 had already acquired the shares of defendant No. 12 to the tune of 10.91 per cent as stated earlier. 28. Thereafter this reply refers to the correspondence by these defendants with SEBI from time to time. Thus, it is stated that on 7-12-1995 when IMFA (defendant No. 3) lodged for registration 10,39,341 shares with Herbertsons, the same day it wrote to SEBI informing about this fact and seek .....

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with full understanding of defendant No. 12 and with their approval. It is also sought to be contended that right from the first day of the acquisition of shares by defendant No. 3, these defendants had entered into correspondence with the SEBI, that is from 7-12-1995 onwards. It is, therefore, suggested that what was being done was being done openly. In para 11 of the reply, it is accepted that on 22-11-1996 the wife of defendant No. 11 acquired 30 per cent holding of K.R. Chhabria in the capit .....

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d invoking the powers of SEBI under section 24 of the SEBI Act. It is further stated in that para that Mr. Raheja replied the same by his own letter dated 19-11-1996 and by his advocates letter dated 23-12-1996 that there has been no violation of the SEBI Regulations of 1994 and that he had already sold off his shareholding in IMFA (defendant No. 3) and had also resigned as its director. 29. (i) Thereafter in para 13 of the reply, defendant No. 11 deals with the acquisition of shares by defendan .....

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that para, it is explained as to how these 4,71,600 shares were purchased from time to time during the year 1995-96 and as to how different persons unrelated to the family of defendant No. 11 were in charge of defendant No. 4. It is further stated that before defendant No. 11 took over the control of defendant No. 4, through the purchase of Seven Star, the directors of defendant No. 12 had already, i.e., on 26-9-1996 approved the registration of transfer of 4,71,150 shares to the name of defenda .....

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paid-up capital of ₹ 4,00,200, ₹ 200 and ₹ 200 only and that they were used as devices had not been specifically denied in this reply though this reply has been affirmed on 21-12-1998, i.e., subsequent to the affidavit in support of Motion No. 3932 of 1998 which is affirmed on 14-12-1998. What is further material to note is that this very affidavit has been adopted as a reply in the affidavit in reply of defendant No. 11 to Notice of Motion No. 3932 of 1998. That affidavit is .....

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diverse amounts had been advanced to these companies and because of their inability to repay them, the companies had been taken over by defendant No. 11. (ii) Similarly, in para 14 of the reply, while dealing with the acquisition of 3,64,750 shares by defendant No. 5 (Shirish), it is stated that these acquisitions were made prior to defendant No. 11 purchasing the entire shareholding of defendant No. 5. For that purpose, it is stated in para 14(a) that the board of directors of Shirish had reso .....

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BI Regulations and it is further stated in para 14(i) that Shirish had filed Appeal No. 21 of 1998 before the CLB under section 111A(2) of the Companies Act to challenge the said refusal. Legal submissions of defendant No. 11 30. Thereafter in para 15 of the rely, defendant No. 11 has culled out his legal submissions in this behalf, which, in a nutshell, are as follows: (a)The provisions of SEBI Regulations of 1997 would not apply to these acquisitions since they are supposed to operate prospect .....

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: (i)Defendant Nos. 3, 4 and 5 and the other six companies, namely, defendant Nos. 2, 6, 7, 8, 9 and 10 are all unlisted companies and SEBI Regulations of 1994 do not apply to those companies whose shares are not listed on any stock exchange as per the provisions of regulation 3(d) of SEBI Regulations of 1994. Defendant No. 11 has acquired the shares in these companies which are not listed companies. (ii)Then again acquisition of shares by defendant Nos. 3, 4 and 5 does not violate the provision .....

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accepted by the Securities Appellate Tribunal, Mumbai in its decision dated 5-8-1998 in the case of Fascinating Leasing & Finance Ltd. v. SEBI [1998] 30 CLA 206 1. (iv)Since defendant Nos. 4 and 5 each had acquired shares which were 5 per cent, in any event regulation 10 (read with regulation 6) would not apply. (v)There is no concept of indirect acquisition of shares of a listed company in the SEBI Regulations of 1994. The takeover of the affairs of defendant Nos. 3, 4 and 5 by defendant No .....

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ions of 1994, and the shareholders of these companies were not related within the meaning of section 6 of the Companies Act. (vii)The stand taken by defendant No. 3 is accepted by defendant No. 12 inasmuch as defendant No. 3 had written on 6-8-1996 as per the draft reply recommended to it by defendant No. 12. 31. Thereafter in paras 16 to 18 of the reply, defendant No. 11 has accepted that SEBI called upon the managing director of defendant No. 3 to show cause as to why prosecution should not be .....

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33. Thereafter, in paras 15, 26 and 27 of the reply, it is stated that in a meeting held on 31-12-1997 the chairman of SEBI asked defendant No. 11 to make a public offer in respect of the aforesaid acquisitions to resolve all controversies. Accordingly by his letter dated 20-1-1998 addressed to SEBI, defendant No. 11 offered to make public offer jointly or severally through his companies under regulations 10, 11 and 12 of the SEBI Regulations of 1997 while stating that the offer was without prej .....

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throughout have been transparent and that they have not acquired any shares in defendant No. 12 either directly or indirectly in contravention of law or acting in concert or fraudulently or illegally. This affidavit in reply affirmed by defendant No. 11 has been adopted with appropriate additions and/or modifications by defendant Nos. 1 to 10. Defendant No. 1 has, however, while confirming what is stated by defendant No. 11, made some more additional statements and submissions. In para 7(a) of h .....

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t No. 12 were being siphoned off with the connivance of Balaji group, i.e., the plaintiffs. There is also a reference to the income-tax assessment order dated 31-3-1997 in this behalf and that he had written to the managing director of defendant No. 12, Mr. S.D. Lalla on 13-6-1997 making an inquiry about the high prices being paid by defendant No. 12 to the Balaji group. Thereafter he has stated that one of the valuable assets which was being transferred by defendant No. 12 was a brewery known a .....

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ant No. 12 as alleged. In para 10, the allegation of siphoning off funds with active connivance of the plaintiff group are also denied. In para 26 of the reply, it is denied that high prices were being given by defendant No. 12 to the Balaji group. In respect of transfer of Bombay Breweries, it is stated that the same was effected way back in 1995 and legitimately after seeking the approval of the shareholders in the AGM of 16-12-1995. 36. Inasmuch as defendant No. 12 has chosen to adopt the rep .....

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as to why defendant No. 12 had initially declined to accept the transfer of shares to defendant No. 3 (IMFA) and subsequently permitted the same. It is stated that the initial refusal as well as subsequent acceptance was on the basis of legal advise received from time to time. In para 20 of the reply, a reference is made to the accounts of BDA Ltd., a 100 per cent subsidiary of Herbertsons Ltd., and it is alleged that "these accounts reveal that defendant No. 1 siphoned away from BDA Ltd. a .....

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t is stated that had such a public offer been allowed to be made, they would have succeeded in their ploy of getting defendant No. 12 de-listed since its public holding would have fallen below 20 per cent of its paid-up capital (which is the minimum requirement for a continued listing on the stock exchanges). Thereafter in paras 48 and 49 of the reply, there is a reference to an agreement or understanding between Chhabria group, UB Ltd. and Herbertsons Ltd. entered into in December 1993. It is s .....

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weries (P.) Ltd. would be sold to defendant No. 12. It was in consideration of the above that it was agreed that defendant Nos. 2, 6, 7, 8, 9 and 10 would acquire 26 per cent of the issued capital of defendant No. 12. It was, however, further stated that it was clearly understood that the shareholding of the Chhabria group including that of defendant Nos. 1 and 11 shall not be more than 26 per cent and no further shares in Herbertsons Ltd. shall be issued/purchased by any of them. It is further .....

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yers therein are same as that of Notice of Motion No. 3120 of 1997 except that as stated earlier, now there is a reference specifically to para 18(iv) of the plaint in the prayer clause. The affidavit in support reiterates and repeats what is stated mainly in the plaint and as stated earlier, para 12 thereof particularly emphasises that defendant Nos. 3, 4 and 5 were small companies put up as devices mainly to buy the shares of defendant No. 12, their monies came from Royal Wines & Tracstar .....

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ally adopts his reply filed earlier to Notice of Motion No. 3120 of 1997. The other defendant Nos. 1 to 10 have by and large adopted the affidavit filed by defendant No. 11. Defendant No. 11 has, however, filed one more affidavit in reply to this motion on 27-1-1999 contending that the Chhabria group had all 43.09 per cent shares which were registered, and 4.39 per cent and 1.58 per cent votes which were unregistered taking the tally to 49.06 per cent. If the proxy votes collected on behalf of t .....

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ofessional qualified chartered accountants including that of one Mr. T.A. Kukreja was taken. It is stated that promissory notes were executed by these companies for return of the amounts which were so advanced and it is only when they failed to return those amounts, that it was felt advisable to take over those companies. Thereafter in this reply, there is a reference to the third show-cause notice by the SEBI dated 8-1-1999 which was addressed to defendant Nos. 1 and 11 and which is referred to .....

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is concerned, the reply filed by it on 5-2-1999 is already referred to. After these replies were filed, plaintiff No. 1 filed a rejoinder on 5-2-1999 controverting various allegations made in the reply of defendant No. 11 particularly the one made in para 16(h) of the affidavit of defendant No. 11 dated 27-1-1999, which is specifically denied. This denial is seen in para 32 of this rejoinder. 41. It is relevant to note that defendant No. 11 has filed a third reply on 9-2-1999 to the above refer .....

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the officer of this court attended the AGM which was to be held on 30-12-1998 and has filed a report in her capacity as Commissioner. This report is made on 6-1-1999 and along therewith the segregated votes have been placed in a sealed packet as directed earlier. 20-4-1999 Securities and Exchange Board of India Act, 1992 and Regulations 43. Having dealt with the pleadings of the parties, it would be advisable to refer to the provisions of the SEBI Act and various regulations which are involved i .....

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public announcement to acquire shares at a minimum price, he shall be liable to a penalty not exceeding ₹ 5 lakhs. The relevant regulations with respect to substantial acquisition of shares and takeovers were for the first time framed in the year 1994 and the same became effective from 7-11-1994. Prior to these regulations coming into force, clause 40 of the listing agreement (which every listed company had to enter with the stock exchange) governed the field. It provided for making a publ .....

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s the stock exchanges and fulfils the conditions specified in clause 40B. The proviso to this sub-clause provided that on an application SEBI could examine specifically any such person. Clause 40B provided that such a person will have to make a public announcement of the takeover offer. Public announcement was to be made both by the offeror company and the offeree company in the manner as stipulated in that clause. The SEBI Act states in its preamble that it is an Act to provide for the establis .....

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vest in the Board consisting of the members as laid down in the section. Section 4(3), however, additionally provides that except otherwise determined by the regulations, the chairman shall also have powers of general superintendence and directions of the affairs of the Board and may also exercise all powers and do all acts and things which may be exercised by the Board. Section 11 of the SEBI Act deals with the functions of the Board. The provisions of this section which are relevant in this ma .....

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rities markets; (f )promoting investors education and training of intermediaries of securities markets; (g )prohibiting insider trading in securities; (h)regulating substantial acquisition of shares and takeover of companies;" Section 11A of the SEBI Act, provides for the matters to be disclosed by the companies. Section 11B of the SEBI Act gives the power to issue directions to the Board and it reads as follows: "11B. Power to issue directions.-Save as otherwise provided in section 11 .....

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rsons referred to in section 12, or associated with the securities market; or (b)to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market." Section 15E of the SEBI Act provides for the penalty for failure to observe rules and regulations by an asset management company. Section 15F of the SEBI Act provides for penalty for default in case of stock brokers. Section 15G provides for penalty for ins .....

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rporate; or (ii)make a public announcement to acquire shares at a minimum price, he shall be liable to a penalty not exceeding five lakh rupees. 15-I Power to adjudicate.-(1) For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G and 15H, the Board shall appoint any of its officers not below the rank of Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for t .....

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ed in sub-section (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections." Section 15K provides for establishment of Securities Appellate Tribunal and under section 15T an appeal is provided against the order of the adjudicating officer to the Securities Appellate Tribunal. Section 15Y provides that no civil courts shall have jurisdiction to entertain any suit or proceedings in respect of any matter which an adjudicating officer is empowe .....

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. Section 24 provides for the offences and section 26 provides for cognisance of offences by courts. Section 30 gives the power to make regulations and sub-section (1) thereof provides that the Board may with the previous approval of the Central Government by notification make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act. Under section 31, these Regulations are to be laid before the Parliament while it is in session for a period of 30 d .....

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ch is on investigation. However, before those regulations are considered, it is necessary to refer to some other provisions in these regulations. Thus, for example, definitions of acquirer , person acting in concert and shares are relevant which read as follows: 2( b)"acquirer" means any person who acquires or agrees to acquire shares in a company either by himself or with any person acting in concert with the acquirer; (d)"person acting in concert" comprises persons who, pur .....

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his associates; and (iv)mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any persons has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company. (i)"shares" means share in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights. Regulation 3(d) provides th .....

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are acquired by the existing shareholders of that company or any of its holding company or of a company under the same management, may pass an order of exemption from the provisions of Chapter III after recording the reasons in writing for grant of such exemption." Thereafter Chapter II provides for disclosures of shareholding and regulation 6 provides that any acquirer, who holds 5 per cent or less than 5 per cent shares in a company and acquires more than 5 per cent shares, shall disclose .....

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cent or less of voting rights in the capital of the company, shall not through negotiations acquire any further shares, which, when taken together with his existing shareholdings, would carry more than ten per cent of the voting rights, unless the acquirer makes a public announcement to acquire shares at a minimum offer price from the other shareholders of the company in accordance with these regulations. (2) Any acquirer, who on the date of commencement of these regulations, holds shares in a c .....

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such person shall make a public announcement referred to in sub-regulation (1) at the time immediately before his entitlement to obtain voting rights on such securities. (4) Nothing in sub-regulation (2) shall apply to any person, who on the date of coming into force of these regulations holds shares carrying more than ten per cent of the voting rights in the capital of a company, if he has already complied with the provisions of clause 40A and clause 40B of the listing agreement of any stock ex .....

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arket in accordance with these regulations. (2) An acquirer who on the date of commencement of these regulations holds shares which carry more than ten per cent of the voting rights in the capital of the company, shall not acquire any further shares in the company from the open market unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with the regulations. 11. Who should make the public announcement of offer.-Before making any public .....

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he public announcement referred to in regulation 9 shall be made not later than four days of either the finalisation of the negotiation, or entering into an agreement or memorandum of understanding to acquire shares, whichever is earlier. 14. Timing of the public announcement of intention under regulation 10.-A public announcement of intention to acquire shares referred to in regulation 10 shall be made either immediately before the acquisition of any shares, which would increase the existing sh .....

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red; (ii)the identity of the ultimate person seeking to acquire shares; (iii)details of the existing holdings of the person acquiring shares together with those of persons acting in concert with him; (iv)details of shareholdings in respect of which the person acquiring shares has entered into an agreement or memorandum of understanding to acquire the shares; (v)intention of acquisition of shares; (vi)the record date and the date by which individual letter of offers would be posted to the shareho .....

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e Practices Act, 1969 (54 of 1969) and Foreign Exchange Regulation Act, 1973 (46 of 1973) required to be obtained for the purpose of acquiring the shares; and (c )approvals to be obtained from shareholders of the company of which the shares are being acquired; (ix)such other information in the investors interest having a bearing on the substantial acquisition of shares. 16. Brochures, advertising material, etc.-(1) The public announcement of offer or any other advertisement, circular, brochure o .....

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r submit the draft of a letter of offer to the Board for its approval. (2) The acquirer shall along with letter of offer referred to in sub-regulation (1) make payment of a fee to the Board of a sum of ₹ 25,000 payable either by cheque or bank draft in favour of the Securities and Exchange Board of India at Bombay. (3) The merchant banker shall submit a due diligence certificate to the Board stating that the statements made in any document, advertisement or brochure issued to the public co .....

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imum offer which shall be- (a )payable in cash; or (b)by exchange of shares if the person seeking to acquire the shares is a body corporate; or (c )a combination of (a) and (b) : Provided that where the agreement or any memorandum of understanding stipulates payment in cash to any class of shareholders, whose shares are being acquired, the remaining shareholders shall also be paid in cash for the shares offered by them for sale of their shares. (2) For the purposes of sub-regulation (1), the min .....

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arket or the average of the weekly high and low of the closing prices of the shares as quoted on the stock exchange during the last six months preceding the date of announcement, whichever is higher, provided there has been a market for such shares during that period in that stock exchange; (c )where there has been no continuous market in the stock exchange for the share to be acquired, such average shall be calculated on the basis of weighted average prices quoted in at least one other stock ex .....

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son to believe that he shall be able to implement the offer. (2) Within fourteen days of the public announcement of offer, the acquirer must also submit a letter of offer to the Board of directors of the company, whose shares are being acquired. (3) The acquirer shall state the period for which the offer to acquire shares from the other shareholders shall remain open : Provided that every such offer shall be kept open for a period of not less than four weeks from the date of the offer. (4) The d .....

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ed in connection with the offer must state that the directors in case the acquirer, is a company, accept the responsibility for the information contained in the document or advertisement : Provided that if any of the directors desire to exempt himself from the responsibility of the information in such document or, as the case may be, the advertisement the document or, advertisement, as the case may be shall, contain a statement to that effect together with reasons thereof. (6) The company whose .....

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portunity to accept the offer. (8) The letter of offer shall be sent to all the shareholders so as to reach them within ten days from the record date. (9) Any acquirer who has made any acquisition of shares either by negotiation or through open market purchases shall not make any further public announcement for acquisition of shares in the succeeding six months. 21. Minimum number of shares to be acquired.-(1) Subject to sub-regulation (2) the offer shall be made to acquire shares from each of t .....

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ions and was not required to comply with the provisions of clause 40A and clause 40B of the listing agreement, the public offer referred to in sub-regulation (2) shall be to acquire a minimum of such percentage as would increase his shareholding to at least thirty per cent of the total shares of that company. (4) The offer referred to above shall not result in the public shareholding being reduced to less than 20 per cent of the voting capital of the company. (5) Where a person seeking to make a .....

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ffers received from the shareholders on a proportional basis. 22. Completion of the offer.-The acquirer shall within a period of four weeks from the date of the closure of the offer complete all procedures relating to the offer including payment of consideration to the shareholders who have accepted the offer. 23. Competitive acquisition.-(1) Any person other than the acquirer making a public announcement may within two weeks of such announcement make a competitive bid for acquisition. (2) The p .....

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pect of such amendments in the same manner as specified in regulation 12; and (c )sends a communication to each of the shareholders. 25. Withdrawal of offer.-(1) No public offer once made shall be withdrawn except on the happening of an event making it impossible for the person acquiring shares for reasons beyond his control to carry out his offer. (2) No offer once made shall be withdrawn without the previous approval of the Board. (3) Without prejudice to sub-regulation (1) a public offer shal .....

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ent of winding up proceedings; (4) In the event of withdrawal of the offer under any of the conditions, the acquirer shall make a public announcement in the same newspaper in which the announcement of offer was published, indicating reasons for withdrawal of the offer. (5) Where an offer is withdrawn under sub-regulation (1) the acquirer shall not make any offer for acquisition of shares in the same company for a period of 6 months from the date, the offer is withdrawn. 46. Then comes Chapter IV .....

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y person who may have acquired or sold securities to any person for any of the purposes specified in sub-regulation (2). (2) The purposes referred to in sub-regulation (1) may be as follows : (a ) to investigate into the complaints received from investors, intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers; and (b)to investigate suo motu upon its own knowledge or information, in the interest of securities busine .....

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deration of the investigation report communicate the findings to the person concerned to give him an opportunity of being heard before any action is taken by the Board on the findings of the investigating authority. (2) On receipt of the explanation, if any, from the person concerned, the Board may call upon the person concerned to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act, rules and regulations.&qu .....

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ies; (b)prohibiting the person concerned from disposing of any of the securities acquired in violation of these regulations; (c )directing the person concerned to sell the shares acquired in violation of the provisions of these regulations; (d)taking action against the person concerned who is an intermediary holding a certification of registration under section 12 of the Act." Lastly, regulation 40 provides that any person aggrieved by an order of the Board may appeal to the Central Governm .....

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s concerned in the acquisition process. The Committee recommended various amendments in the Regulations, particularly with a view to cover the concept of indirect acquisition through acquisition of unlisted investment companies. The Committee recommended expansion of the concept of person acting in concert . The Committee recommended that not only acquisition of shares but also voting rights in a company or control over a company, whether the control is exercised directly or indirectly, must als .....

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y, SEBI Regulations, 1997. The definition of acquirer specifically stated that it included those persons, who directly or indirectly acquired or agreed to acquire the shares or voting rights in the target company. This principle of direct or indirect acquisition is also related to concept of control. The concept of persons acting in concert was widened and the threshold limit was altered as stated above. As far as the present motions are concerned, admittedly the initial acquisition of defendant .....

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ited on by the learned counsel appearing for the parties. As far as the plaintiffs in Suit No. 3910 of 1997 are concerned, they were led by Mr. F. S. Nariman, senior counsel with Mr. Apsi Chinoy and Mr. J. P. Avasia assisting him. Mr. Rohinton Nariman with Mr. N. H. Seervai and Mr. S. J. Vajifdar appeared for defendant No. 12 and supported the plaintiffs motion. Mr. Harish Salve, senior counsel with Mr. P. N. Subramaniam appeared for defendant No. 1. Mr. V. R. Manohar, senior counsel with Mr. S. .....

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in this judgment in the order in which the arguments were placed before the Court on behalf of the plaintiffs at the outset as well as in the rejoinder (both taken together) and by specifying the particular topics wherever possible. The points raised by the plaintiffs have been dealt with by all the counsel appearing for defendant Nos. 1 to 11 in their reply, though some of them have emphasised particular aspects of the controversy. While doing so, some of the judgments cited were common on bot .....

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em sheerly due to the large number of judgments cited. Documents relied upon 50. The learned counsel appearing on both sides assisted me by relying upon different charts and also giving their propositions in writing whenever necessary. They were allowed to rebut every proposition raised by their opponents without insisting on any technicalities. A large number of documents were tendered by the defendants and a few by the plaintiffs also. They consisted of four huge volumes which are marked as Co .....

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-1999 issued to defendant Nos. 1 to 11 was issued and served after the filing of the suit. 52. The first show-cause notice issued to Ram Raheja on 9-10-1996 is produced by the defendant at page 45 of the Compilation C-I. The subject of the notice reads as follows : "Show-cause notice under section 24 of SEBI Act for non-compliance of regulations 6 and 10 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994." Para 1 of this notice alleges that Mr. Ram Raheja ap .....

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letter dated 7-12-1995, Mr. Raheja had written to the SEBI that Regulations of 1994 would have no application to him since he was not holding any share before acquiring the present shares. Para 3 of the notice rebuts this submission of Mr. Raheja and states that it is noted that the said shares are in excess of 5 per cent and 10 per cent of the equity capital of the company in the context of regulations 6 and 10 respectively. It further states that according to regulation 6, any acquirer, who h .....

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er. Thereafter, it states that on a combined reading of two regulations, it is apparent that an acquirer need not be an existing shareholder of a company. The said para further states that these acquisitions are made without making a public announcement and hence the person concerned was guilty of violation of the said regulation. Thereafter, the notice deals with the subsequent letter of Mr. Raheja dated 19-8-1996 including his submission that if a public announcement is permitted, the residual .....

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nt No. 3 itself on 31-3-1997, a copy of which is provided at page 105 of Compilation C-I. This notice also principally reiterates what was alleged in the earlier notice. It repeats that as per regulation 10, an acquirer, who makes outright acquisitions carrying voting rights of more than 10 per cent, would be required to make a public announcement. It further states that the expression less than 5 per cent would obviously include zero /nil shares also. The notice, which is addressed to the manag .....

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e material available to the SEBI, defendant Nos. 1 and 11 had acquired 47.48 per cent shares in Herbertsons Ltd. during the years 1993 to 1997 apparently without making any public offer. Para 1 of this notice states that defendant Nos. 1 and 11 had acquired some 27.21 per cent shares of Herbertsons Ltd. prior to notification of 1994 Regulations. That was done through the device of different companies which were financed by funds provided by Chhabria Marketing Ltd. Thereafter, in this para it is .....

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uch company does not appear to be based on any commercial prudence inasmuch as the paid-up capital of this company in March 1995 was ₹ 4,00,200 and the total reserves and surplus were only ₹ 3,17,640. The acquisition of shares of this company on account of its failure to repay the interest free loan is, therefore, criticised. In para 3 of the notice, the acquisition of 4.97 per cent shares of Herbertsons Ltd. through Mahameru is commented upon. Mahameru was given ₹ 1.12 crore b .....

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u and Shirish for purchasing the shares of Herbertsons Ltd. and inasmuch as the borrowers defaulted in repayment of the alleged dues, the shareholding of the companies were taken over by defendant Nos. 1 and 11. This had resulted into defendant Nos. 1 and 11 acquiring the control of shares of Herbertsons Ltd. Then the notice states "It appears that the acquisition of shares are done in a manner to circumvent the provisions of the SEBI (Takeover) Regulations, 1994". Thereafter, the noti .....

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11, 11B and 24 of the said Act and regulation 39 of Regulations 1994 read with regulations 44, 45(6) and 47(2a) of Regulations 1997 be not initiated for the alleged violation. 55. All these notices have been replied and there has been further correspondence thereto which will be dealt with suitably at a later stage. It is further relevant to note that subsequent to the last notice, further inquiry by the SEBI has started and the representatives of defendant Nos. 1 and 11 are participating therei .....

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before the CLB, namely, one initiated under sections 397 and 398 of the Companies Act by defendant No. 2 and others herein against defendant No. 12 being Company Petition No. 17 of 1999 making a grievance of oppression and mismanagement. Question of jurisdiction 57. In the light of these other proceedings, which are independently pending, it was submitted amongst other submissions on behalf of defendant Nos. 1 to 11 that as far as the registration or non-registration of shares is concerned, the .....

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try and entertain the present proceedings. Para 1(g) of the affidavit in reply of defendant No. 11 to Notice of Motion No. 3120 of 1997 raises the following plea : "This Hon ble Court does not have jurisdiction to try, entertain and dispose of this suit." 58. In view of this ground raised in the reply, Mr. Nariman, the learned counsel appearing for the plaintiffs, submitted during the course of his arguments at the outset that he would require a clarification from the defendant Nos. 1 .....

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e plaintiffs and the appropriate remedy for the reliefs was available to the plaintiffs by approaching the CLB through the company. Mr. Nariman submitted that if that issue was being pressed, then he will expect this Court to frame the issue only on that aspect and to have it decided as a preliminary issue. Mr. Nariman submitted that this issue cannot be mixed up with any other issue in view of the specific provision of section 9A introduced in the Code of Civil Procedure, 1908, through an amend .....

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e of Meher Singh v. Deepak Sawhny [1998] 4 All MR 536. That judgment refers to the statement of objects and reasons for adding section 9A which in turn refers to an earlier judgment in the case of Institute Indo Portuguese v. Borges [1958] 60 Bom. LR 660, wherein this Court had taken a view that the city civil court need not go into the question of jurisdiction while granting interim relief. This had resulted into injunction being granted without going into the question of jurisdiction and had l .....

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at the time of final hearing of the suit. If such issue is decided at an earlier stage, rights of the parties can be crystallised. As stated earlier, section 9A is a departure from the procedure prescribed under Order XIV, rule 2, of the Code of Civil Procedure, 1908 (CPC) for achieving that object. For determination of the preliminary issue, which may be mixed question of law and facts, the parties are required to lead evidence. Without permitting the parties to lead evidence the issue of juri .....

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vidence, but if it is a mixed question of law and fact, then parties should be permitted to lead evidence on the facts of the case. Question of jurisdiction, even if it is a mixed question of law and fact, it is required to be decided first. For deciding the said issue, the parties are entitled to lead evidence, oral as well as documentary, as that issue is required to be tried and adjudicated finally by the court. The determination of the said issue is not only for the limited purpose of granti .....

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ion for deciding the question of jurisdiction were disposed of together. In para 5, the learned single Judge observed "the nature of evidence which a party would be required to place before the court when the court is considering a question of granting or refusing interim relief under order 39 would be totally different from the nature of the evidence which it would require to place before the court when the court is to consider question of jurisdiction". Hence, in para 8, the learned .....

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y not be exercised looking to the fact that the concerned disputes would appropriately be tried either by the CLB or by the SEBI. The submission of the defendants was that the jurisdiction of the civil courts with that of the authorities concerned was somewhat overlapping and concurrent jurisdiction. The judgments of the Supreme Court Dhulabhai v. State of Madhya Pradesh AIR 1969 SC 78, onwards were referred to by both the learned counsel. In that context, Mr. Nariman also drew my attention to a .....

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efendants must agree that they were not pressing the issue in the manner in which it was worded in para 1(g) of the above referred affidavit in reply of defendant No. 11. 62. In view of the objection raised by Mr. Nariman and after due deliberations and instructions, the defendants filed a joint affidavit of defendant No. 1 and defendant No. 11 affirmed on 16-3-1999, stating therein that for the reasons contained therein, clause (G) of para 1 was not being pressed. The said affidavit of defendan .....

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ated as under: "1A. I submit that this hon ble court does not have jurisdiction to entertain, try and dispose of this suit." 3. In connection with the above submissions in the said affidavit, I wish to clarify and state as under : 4. If the company had filed the present suit, the defendants could and would have contended that the jurisdiction of this hon ble court was ousted. Defendants would have relied on AIR 1998 SC 3153 read with section 111A(2) and (3). 5. However, it is Mr. Reddy .....

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d (b)that as Mr. Reddy (Plaintiffs) is only a name lender for the company and no civil rights of Mr. Reddy are infringed, no relief should be granted to him. These are some factors amongst others which the court should consider while exercising its discretion in refusing the interim relief. (ii)At the trial of the suit : That Mr. Reddy (Plaintiffs) does not have any civil right to oppose registration or to have the register rectified and hence his suit should be dismissed. In the light of the ab .....

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er in which it is sought by the defendants herein. The interlocutory application was required to be decided on affidavits or otherwise as stated in order 39, rule 1, of the Code of Civil Procedure and principally what the Court has to see is that the application was not frivolous or vexatious. Mr. Nariman, however, submitted that serious questions of law or matters which were required to be decided an evidence were not expected to be gone into and decided at the interlocutory stage. What the Cou .....

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d particularly Mr. Doctor emphasised that the complainant had to make out a prima facie case to justify an interlocutory order. Merely because serious issues were raised, an interim order cannot be passed in favour of the plaintiffs if he fails to make out a prima facie case in their favour. 64. It, therefore, becomes material to go into this question as to whether as a proposition of law, the plaintiffs are required to make out a prima facie case based on legal rights to entitle them for an int .....

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tainty were resolved in his favour at the trial; but, the plaintiffs need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff s undertaking in damages if the uncertainty were resolved in the defendant s favour at the trial. The court must weigh one need against another and determine where .....

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rican Cyanamid Co. s case (supra), the House of Lords further observed as follows : The use of such expression as a "probability", "a prima facie case", or "a strong prima facie case" in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, th .....

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t of an interlocutory injunction was that it aided the court in doing that which was its great object, viz., abstaining from expressing any opinion upon the merits of the case until the hearing." (p. 510) The above two judgments, namely, American Cyanamid Co. s case (supra) and Wander Ltd. s case (supra), were again referred to in a subsequent Supreme Court judgment in the case of Power Control Appliances v. Sumeet Machines (P.) Ltd. [1994] 13 CLA 348. Paras 34 and 35 of that judgment refer .....

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1 All ER 1023 which was decided prior to American Cyanamid Co. s case (supra) and a judgment subsequent thereto by the Chancery Division in the case of Series 5 Software Ltd. v. Clarke [1996] All ER 853. In Hubbard s case (supra), Lord Denning MR in para on Remedies observed as follows : "In considering whether to grant an interlocutory injunction, the right course for a judge is to look at the whole case. He must have regard not only to the strength of the claim but also to the strength o .....

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arlier judgment of Court of Appeal in the case of Hubbard (supra) was referred, the principles were laid down in the following passage : "Accordingly, it appears to me that in deciding whether to grant interlocutory relief, the court should bear the following matter in mind : (1) The grant of an interlocutory injunction is a matter of discretion and depends on all the facts of the case. (2) There are no fixed rules as to when an injunction should or should not be granted. The relief must be .....

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strength of the parties cases." (p. 865) Thereafter in the judgment, it was held that there was no significant inconsistency between the earlier judgments in the case of Hoffmann-La Roche [1974] 2 All ER 1128 and American Cyanamid Co. (supra). 67. Coming to the judgments in Indian cases, particularly the one in the case of Dorab Cawasji Warden (supra), Mr. Doctor submitted that the said judgment was essentially in the context of section 44 of the Transfer of Property Act, 1882. The provisi .....

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e injunction should follow. 68. Mr. Nariman had given a list of important issues which arises in the matter. The serious questions to be tried, according to Mr. Nariman, are as follows : (1) Whether an acquisition in violation of the SEBI Regulations would be void? (2) Whether a transfer of shares in the register of members in violation of provisions of law would be entertained? (3) Whether apart from the statutory violations, the plaintiffs had in common law the right to seek the rectification .....

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ions? (7) As to what should be the correct interpretation of persons acting in concert ? (8) Whether the plaintiffs should be denied the relief on account of the alleged improper conduct on their part or any delay or any improper motive? 69. With respect to various serious questions raised by Mr. Nariman, Mr. Doctor submitted that assuming that any such questions were raised, the plaintiffs must make out a prima facie case, otherwise the result of it would be that merely because some questions a .....

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tion could be granted under order 39, rules 1 and 2, of the Code of Civil Procedure, 1908 unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case and, if so, as between whom? In view of the legal principles applicable, it is difficult for us to say on the m .....

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nce of convenience." Thus, as seen in the above cited judgment of the Chancery Division in Series 5 Software Ltd. s case (supra), there was no significant inconsistency between the earlier judgment in the case of Hoffmann-La Roche (supra) and American Cyanamid Co. (supra), and the propositions which should govern the grant of interlocutory injunction were laid down in the earlier paragraph of that judgment at p. 865. Later on in that judgment, the Chancery Division observed "There is n .....

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he parties has to be gone into by the Court. To this extent, the submission of Mr. Doctor is well taken and this Court will have to examine the defence of the defendants prima facie so as to decide whether the plaintiffs are entitled to the interim reliefs that they have prayed. In fact, in a subsequent judgment in the case of Gujarat Bottling Co. Ltd. v. Coca Cola Co. [1995] 5 SCC 545, the Supreme Court has crystallised the law with respect to various aspects to be examined at the interlocutory .....

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ntiff; and (iii) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed. The decision whether or not to grant an interlocutory injunction has to be taken at a time when the existence of the legal right assailed by the plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence. Relief by way of interlocutory injunction is granted to mitigate the risk of inju .....

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ving been prevented from exercising his own legal rights for which he could not be adequately compensated. The court must weigh one need against another and determine where the balance of convenience lies. In order to protect the defendant while granting an interlocutory injunction in his favour the court can require the plaintiff to furnish an undertaking so that the defendant can be adequately compensated if the uncertainty were resolved in his favour at the trial." (p. 574) Thus, in the .....

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ct raised by the defendants, which will have to be gone into before one goes into the prima facie merits of the rival contentions. It had been submitted on behalf of the defendants that the plaintiffs have no legal right to claim the kind of relief that they were seeking in the present suit. It was submitted that they neither had such a right in common law nor in any statute. As far as the right in common law is concerned it was principally submitted that it was available to the shareholders of .....

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d, if there was any such alleged breach of the SEBI Regulations in the light of the interpretation canvassed by Mr. Nariman, it was a matter to be looked into by the authorities concerned, namely, SEBI and that this Court had no jurisdiction to look into it and in any case this Court was not expected to go into the issues which would be competently looked into by the SEBI. The judgment of the Supreme Court in the case of Supreme Court Bar Association v. Union of India AIR 1998 SC 1895 was relied .....

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e shares , etc., were all questions within the realm of jurisdiction of the SEBI and it had sufficient powers to give the necessary directions under the regulations. The case of the plaintiffs is that the acquisitions made by the defendants are bad and, therefore, they should be directed to disinvest the same. As against that, the case of the defendants is that firstly whether the concerned regulations apply is itself a doubtful proposition. Even if they apply, whether there is any breach of the .....

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the concerned advocate Mr. V.C. Mishra was guilty of contempt of court and the Court had exercised its powers under article 142 of the Constitution read with section 38 of the Advocates Act in a summary procedure to suspend his licence to practice. That earlier, judgment in the case of Vinay Chandra Mishra, In re [1995] 2 SCC 584 was in terms over ruled in this later judgment provided in Supreme Court Bar Association s case (supra). As far as the order holding the advocate guilty of contempt and .....

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ble only to the Bar Council of India, on the ground that the contemner is also an advocate, is, therefore, not permissible in exercise of the jurisdiction under article 142. The construction of articles 142 must be functionally informed by the salutary purposes of the article, viz., to do complete justice between the parties. It cannot be otherwise. As already noticed in a case of contempt of court, the contemner and the court cannot be said to be litigating parties." (p. 1908) Thereafter i .....

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onstitutional powers cannot, in any way, be controlled by any statutory provisions but at the same time these powers are not meant to be exercised when their exercise may come directly in conflict with what has been expressly provided for in a statute dealing expressly with the subject..." (p. 1909) Mr. Dada emphasised these observations to contend that when the Supreme Court had all the powers to do complete justice under article 142, still the power itself led the Court to set the limits .....

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possessed the adequate powers, this Court ought not to exercise its discretion in a civil suit in such a way as to fetter or reduce the powers that are available to the SEBI or to affect the orders that SEBI would pass. 71. Mr. Nariman, on the other hand, submitted in this behalf that what the plaintiffs were seeking was not a direction or an order which was within the jurisdiction of SEBI. Mr. Nariman accepted that the provisions laid down in Supreme Court Bar Association s case (supra) were un .....

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he Court, has, however, in the very paragraph clearly stated, as quoted above, that the Supreme Court was not a Court of restricted jurisdiction and that it has always been a law maker. Thereafter the Court specifically observed "Indeed these constitutional powers cannot in any way be controlled by statutory provisions". Similarly in para 81, the Court observed : "...To the extent, this court makes the statutory authorities and other organs of the State perform their duties in acc .....

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at of directing disinvestment of shares or to permit post facto announcement if deemed appropriate. However, in his submission, in the facts of the present case certain questions had arisen regarding the interpretation of SEBI Act and the regulations which required elucidation of law. What were the powers of the SEBI, and as to what should be the correct interpretation of the SEBI regulations were issues which were clearly within the jurisdiction of this Court. In fact, the regular Courts alone .....

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ne Tribunal which could be stated to be the most powerful Tribunal amongst the various Tribunals. This is because article 262(2) specifically declares that notwithstanding anything in the Constitution, the Parliament may by law provide that neither the Supreme Court nor any other Court shall exercise jurisdiction in respect of any such dispute or complaint as is referred in clause (1) of article 262 which provides that Parliament may by law provide for the adjudication of any dispute or complain .....

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ribunal is a very powerful Tribunal as compared to other Tribunal which would come within the sweep of article 136 and against whose orders appeal would lie to the Supreme Court. In spite of this being the position, in the aforesaid judgment the Supreme Court did exercise jurisdiction in a controversy which was raised by the appellants with respect to an interim order that they had sought. The controversy raised by the appellants was that they had moved an application before the Tribunal for gra .....

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related to the controversy covered under the Inter-State Water Dispute Act, 1956 it had no jurisdiction to decide the merits of that dispute. Yet the Supreme Court declared in para 12 : "The Tribuanl is a statutory authority constituted under the Act made by the Parliament and this court had jurisdiction to decide the parameters, scope, authority and jurisdiction of the Tribunal. It is the judiciary, that is the courts alone that have the function of determining authoritatively the meaning .....

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end to react adversely, regarding this as an encroachment upon its constitutional sphere." The Court also quoted with approval the earlier judgment in the case of Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. [1983] 1 SCC 147, wherein the Court had held : "...No one may speak for the Parliament and Parliament is never before the Court. After Parliament has said what it intends to say, only the court may say what the Parliament meant to say. None else..." (p. 172) 73. Mr. Narima .....

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acquisition of more than 10 per cent shares would not violate SEBI Regulations merely because such acquirer did not prior thereto hold any share in the company? (2) Whether having regard to the true purpose of the regulations, it was permissible under the Regulations 1994 for the SEBI to validate the acquisition of shares purported to be acquired in breach of regulation 10 by merely directing an ex post facto public offer which would permit acquisition of further shares? (3) What is the correct .....

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t acquisition of shares in the target company, is again a question required to be gone into due to a prima facie incorrect construction placed thereon by the appellate authority of SEBI in Sesa Goa s case to the contrary. However, as in the river water dispute case and more so in the present case, Mr. Nariman submitted that there were concepts which required elucidation. There were controversies with respect to concepts such as acting in concert, holding of the necessary shares, etc. This is som .....

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nouncement. And it certainly cannot mean that this Court ought not to exercise its lawful function to lay down the frontiers of jurisdiction of the SEBI or interpretation of various concepts which are used in the SEBI Act and regulations. This is not something like an actual exercise of the powers vested in another competent authority under a particular statute. If this Court interprets the concepts involved and lays down the frontiers of jurisdiction of the SEBI, that would be within its powers .....

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he SEBI Act and Regulations 1994. In fact, as held in the Cauvery Water Tribunal case (supra), "courts alone have the function of determining authoritatively the meaning of statutory enactments." Plaintiffs case alleging breaches of particular regulations by defendant Nos. 1 to 11 and interpretation thereof. 75. Then coming to the particular breaches of the regulations, Mr. Nariman submitted that in the facts of the present case, the grievance of the plaintiffs is that undoubtedly all .....

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defendant Nos. 3, 4 and 5 and thereafter by defendant Nos. 7 and 8, were purchased from open market and when taken together with the earlier holding of the group, they undoubtedly carry more than 10 per cent of the voting rights. Mr. Nariman submitted that the story of the defendants that these defendant Nos. 3, 4 and 5 had an independent existence is difficult to swallow. They were at all material times financed by Chhabria group of companies for buying these shares. Although they were microsco .....

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Nariman pointed out that the show-cause notice issued to IMFA (defendant No. 3) dated 31-3-1997 speaks of acquiring 10 per cent or more shares as violative of these regulations. On the other hand, the defendants relied upon another decision of SEBI in the case of Fascinating Leasing & Finance Ltd. (supra), which held that if an acquirer did not hold any shares earlier, he would not come within the mischief of regulation 10. The indirect acquisitions were not specifically covered in 1994 Regu .....

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AIR 1994 SC 1699. That was a case under the Payment of Wages Act, 1936. The earlier definition of wages as incorporated in section 2(vi) of the Act initially did not specifically cover wages fixed by an award. They were sought to be included by a specific amendment brought in by the Payment of Wages (Amendment) Act, 1957. The question before the Court was as to whether the term wages as it existed earlier included wages fixed by an award in an industrial dispute between the employer and the emp .....

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Supreme Court in the case of Baldev Krishna Sahi v. Shipping Corpn. of India Ltd. AIR 1987 SC 2245. That was a case under section 630 of the Companies Act, which makes officers of a company liable for wrongfully holding company s property. It was canvassed before the Supreme Court that the section did not include former officers of the company. The Court held that having regard to the object of the section and its purpose, the term must be held to include its former officers also. Thus, it is se .....

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ed and was brought in by Regulations 1997 was something already inbuilt in regulation 10. If regulation 10 is interpreted to mean that it operates only against someone who holds some shares, then all those who do not hold any shares and at one go acquire more than 10 per cent shares would be outside the scope of these regulations. That could not be said to be the intention of regulation 10 as originally drafted. It was no doubt true that regulation 10 was specifically amended to make certain thi .....

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are not read purposively, it would be very easy to defeat them. Mr. Nariman submitted that the judgments in the case of Sesa Goa and Fascinating Leasing & Finance Ltd. (supra) do not lay down the correct proposition of law and it was, therefore necessary for this Court to lay down the frontiers of jurisdiction of the SEBI in this behalf. On the other hand, it was submitted by the defendants that those judgments were binding on the SEBI with respect to which Mr. Nariman pointed out that the .....

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be attained under the regulations. All those persons who hold 5 per cent or more shares were required to disclose the aggregate of their shareholding to the company under regulation 6. Similarly, if regulation 10 required a person acquiring more than 10 per cent of shares to make a public announcement of his intention to acquire those shares in open market, transparency was very much writ large on this regulation also. Mr. Nariman submitted that this was necessary because the idea was to give t .....

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th the provisions for competitive acquisition made in regulation 23 which permits a competitive bid to be made by a person other than the concerned acquirer. The idea is that the competitive investors would get the better price. Mr. Nariman submitted that in the absence of an opportunity to compete, the market would remain tight and the investors would suffer. Acting in concert 77. As far as acting in concert is concerned, Mr. Nariman submits that it is something about which actual evidence is n .....

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he Supreme Court allowed the appeal against the judgment of the High Court holding that its approach was erroneous and in para 14 observed as follows : "...if the members of the Kedia family form a block and had more than 75 per cent of the voting power, it was not necessary to prove that they actually exercised controlling interest. It is the holding in aggregate of a majority of the shares issued by a person or persons acting in concert in relation to the affairs of the company which esta .....

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e the husband of sister of Kishore Chhabria, the defendant No. 1. The defendants submit that Mr. Ram Raheja does not come within the definition of the concept of a relative as defined under section 6 of the Companies Act and, therefore, financing done through Mr. Ram Raheja cannot be said to be through a person acting in concert. As against that, Mr. Nariman points out that what should be noted is that regulation 2(1)(d), which defines persons acting in concert firstly mentions the persons who a .....

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s associates in this definition. Thereafter in the Explanation the term associate is explained in two clauses (A) and (B). The relatives mentioned in section 6 of the Companies Act are included in clause (A), whereas the director or his relatives whether individually or in aggregate holding more than 2 per cent of the paid-up equity capital of such company are included in clause (B). Such company would mean the concerned company referred in sub- clause (iii). Therefore, inasmuch as Ram Raheja wa .....

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ion is worded in a negative language that the acquirer shall not acquire any further shares unless a particular method is adopted, the wording will have to be given its due force. Breaches of these regulations invite penal actions and, therefore, it is submitted that when such negative covenants are provided with consequent deterrents and provisions ought to be read as mandatory provisions. He submitted that breaches can only lead to a direction, to disinvest such shares which was contemplated b .....

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irer is told that by virtue of those purchases if his holding is going to be more than 10 per cent, he shall have to make a public announcement of offer. This public announcement will undoubtedly lead him to buy some more shares which is the third lot as provided under regulation 21(2), namely, that he shall offer to buy from the public an aggregate minimum of 20 per cent of the total shares of that company. He has to buy this third lot in competition with any party which may give a competitive .....

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r acquired through negotiations or from market and this provision is done to facilitate the takeover. The submission of the defendants is that further 20 per cent shares are to be bought in the third lot and thus, this is a kind of exit opportunity for those shareholders who do not want to remain with the company. It is, therefore, contended that the second lot of the purchases cannot be tainted merely because regulations 9 and 10 have a negative covenant. The public announcement contemplated un .....

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t is not that merely because there was a breach of regulations 9 and 10 that ipso facto the acquisitions ought to be tainted or that there ought to be an order of disinvestment. As against their submission, Mr. Nariman pointed out that assuming that there could be a post facto announcement, it should also cover the second lot of purchases by the persons concerned. Otherwise it would mean that even though there is a breach of regulations 9 and 10, the second lot of purchases would go scot-free an .....

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s are for the benefit of the investors and every order to be passed by the SEBI will have to be in the interest of the investors and the regulations will also have to be read and interpreted in the interest of the investors. The defendants submit that the regulations are not meant for protecting or safeguarding the companies or their existing managements. The object of the regulations is to bring in more investment and to protect the investors and not to protect the existing managements. As agai .....

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ses if his holding goes beyond 10 per cent, he shall have to make a public announcement. All these competing submissions on rival sides require a careful consideration and the learned counsel on both the sides have relied upon a number of authorities in support of their submissions to canvass as to what should be the correct approach towards these regulations in the facts of the present case. 21-4-1999 81. Mr. Nariman submitted that SEBI had all throughout maintained that the acquisitions made b .....

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by one Mr. Gupta of SEBI in this behalf. Mr. Nariman pointed out that the handwritten note relied by the defendants indicated that it was a kind of noting on a file and the earlier papers from that file were not being produced. That apart, inasmuch as both these documents are not coming from a proper custody nor are these authenticated documents or issued on the letter-heads of the authority concerned, I cannot but refrain from referring to them. I have already refused to look into Annexure &qu .....

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r the former Chairman of the Committee are before the Court and hence no inference can be drawn merely by production of a letter written by the former Chairman of SEBI Committee. 82. Mr. Nariman submitted that just as the protection of the investors was one of the objective of the regulations, so was transparency in the dealings. That was necessary in the interest of the large section of the small investors. As has been seen earlier, under regulation 6, and acquirer, who holds 5 per cent or less .....

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significance, it would lead to any number of such holders of large number of shares to surreptitiously increase their shareholdings without making a public announcement and this would certainly be to the detriment of the investors. The disputed shares were admittedly acquired in open market without making public announcement and were admittedly from a common source of funds. That ought to lead one to the inference as in East Coast Commercial Co. Ltd. s case (supra) that the persons concerned wer .....

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e on the advice of the chartered accountant one Mr. A.T. Kukreja. Incidentally, this Mr. Kukreja apart from being the auditor of defendant No. 3 was admittedly a director of two of the other group companies, namely, Darrel and Stingray (defendant Nos. 8 and 9 herein). 83. Mr. Nariman submitted that the conjunction with used in the definition of acquirer given in clause 2(b) of the regulations indicated the causal connection and would also include the meaning acquiring through . He placed relianc .....

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legality in a collateral manner in the present proceedings. He relied upon the observations of the Supreme Court in LIC of India v. Escorts Ltd. AIR 1986 SC 1370, para 84 at p. 1413 in this behalf. He submitted that the plea of the defendants that SEBI notices were abandoned could not be accepted inasmuch as recently as on 20-1-1998, defendant No. 11 himself in his letter to the Chairman of SEBI (at pp. 220-221 of Vol. C-I) recorded as follows : "However, I understand that SEBI is not satis .....

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d an inquiry and Delhi High Court held that the fact of institution of the inquiry by SEBI showed that there was a prima facie case of the violation of the Takeover Code by the Concerned companies (see para 12 of the judgment supra at p. 265). In that case, the acquirer was already the controlling group and hence there was no occasion of freezing the voting rights. Still the Court passed interim orders restraining the sale of the disputed shares in the target company to prevent an irrevocable al .....

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ally and without authority because no proper instruments of transfer duly stamped and executed were delivered to the respondent-company. The relevant part of section 108 as it then stood reads as follows : "Transfer not to be registered except on production of instrument of transfer.-A company shall not register a transfer of shares . . . unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee. . . has been del .....

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egislative device to make a statutory provision imperative". In para 17, the Supreme Court referred to the judgment in the case of Raza Buland Sugar Co. Ltd. v. Municipal Board AIR 1965 SC 895, wherein various tests had been laid down to find out whether a provision was mandatory or directory and which were (i) the purpose for which the provision has been made, (ii) its nature, (iii) the intention of the Legislature in making the provision, (iv) the general inconvenience or injustice which .....

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dicative of the legislative intent when the statute is mandatory. (See Maxwell on Interpretation of Statutes 11th edn. p. 362 and Bhikraj Jaipuria v. Union of India AIR 1962 SC 113 at p. 119)." (p. 539) The Court, therefore, held the words shall not register as containing a mandatory direction. Thereafter, the Court observed as follows : "21. If anything is against law though it is not prohibited in the statute but only a penalty is annexed the agreement is void. In every case where a .....

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statute for the purpose of preventing something from being done on some ground of public policy, the thing prohibited, if done, will be treated as void, even though the penalty is imposed is not enforceable." (p. 539) 85. Similar is the approach of the Privy Council in the case of Moti Chand v. Ikran Ullah Khan AIR 1916 PC 59 wherein the Privy Council laid down some of the guidelines with respect to the approach the Courts ought to take with respect to a legislation like the tenancy law (Ag .....

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o a suit for breach of contract on his failing or refusing to relinquish such lands. All such devices, arrangements, and agreements are in contravention of the policy of the Act and are contrary to law and are illegal and void, and cannot be enforced by the vendee in any civil court or in any Court of Revenue. In McDowell & Co. Ltd. v. Commercial Tax Officer AIR 1986 SC 649, while dealing with the interpretation of Andhra Pradesh General Sales Tax Act in the context of tax evasion, the Supre .....

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rt observed in para 18 which was pressed into service by Mr. Nariman and which reads as follows : "18. It is neither fair not desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging techniques of in .....

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t be permitted to be done indirectly. At page 460, the Court observed ". . . the law in England and India is substantially the same with regard to the enforcement of the contract. The only difference is that in England the owner of the equitable interest is considered as the owner of the property contracted to be conveyed. But no such result can follow from a contract creating an executory interest. If such a contract purports to do by indirect means what the law forbids to be done directly .....

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the contention by observing : "In the instant case, the learned judge has proceeded on the basis that this was not an injunction sought against the bank but this was an injunction sought against the appellant. But the net effect of the injunction is to restrain the bank from performing the bank guarantee. That cannot be done. One cannot do indirectly what one is not free to do indirectly." (p. 293) Submission on behalf of defendant Nos. 1 to 11 87. The aforesaid submission of Mr. Narim .....

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and in his submission no such prohibited acts had been indulged into by the defendants. Assuming without accepting that such was the state of affairs, Mr. Doctor contended that all that the said judgment laid down was that such contracts would be unenforceable. He, however, submitted that the transfers themselves would not become void merely because the contracts were unenforceable. Mr. Doctor submitted that section 23 of the Indian Contract Act, 1872 applies only to executory contracts and not .....

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illegality in detinue and in trespass. The transaction between the plaintiff and the defendant though an illegal one, was nevertheless fully executed and carried out. The House of Lords (per Lord Denning, J.) held that on that account it was effective to pass the property in the lorry to the plaintiff. The Court observed: ". . .There are many cases which show that when two persons agree together in a conspiracy to effect a fraudulent or illegal purpose - and one of them transfers property t .....

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ents were not severable, and they were composite agreements even then the ready leg having been performed, the position in law is that the illegality of the agreements cannot affect the transfers which had already taken place." (p. 1966) 88. Mr. Doctor submitted that in the two cases, namely B.O.I. Finance Ltd. (supra) and Sajan Singh (supra), what is to be noted is that those cases were filed by the parties to the transaction and yet the contracts were not avoided. In the instant case, the .....

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le at the highest was to go for a post facto permission to make the public announcement and the question of prosecution for the alleged breaches could be looked into subsequently. Mr. Doctor again stressed that it was only because of the intervention of the plaintiffs and the former chairman of the Committee of SEBI on their behalf that SEBI was changing its stand. He submitted that once the title in the shares had passed into the hands of the concerned defendants, SEBI cannot direct them to dis .....

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to whether prayer (b) could independently be granted or not would be looked into later on when submissions on section 111A are gone into. Mr. Doctor also relied upon the judgment of House of Lords in the case of Tinsley v. Milligan [1994] 1 AC 349 in this behalf, wherein Lord Browne-Wilkinson observed (at page 369) "It is said that the property lies where it falls, even though legal title to the property was acquired as a result of the property passing under the legal contract itself" .....

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ulation 10 that the deficiencies in the 1994 Regulations were sought to be cured by 1997 Regulations by bringing in indirect acquisition. He referred to the judgments of the Supreme Court in Howrah Trading Co. Ltd. v. CIT AIR 1959 SC 775 (at pp. 779-780) and Balkrishan Gupta v. Swadeshi Polytex Ltd. AIR 1985 SC 520 (at p. 531) to emphasize as to what constitutes "holding of shares". He submitted that regulation 10, as it existed in 1994, had three ingredients, firstly one had to hold c .....

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re purchased in the year 1997 after the 1997 Regulations came into force and under regulation 11(1) of the 1997 Regulations, the acquisition up to 2 per cent were not hit. He submitted that 54,000 shares would be just 0.56 per cent which would mean permissible acquisitions. He also submitted that defendant Nos. 3 to 5 could be considered as related companies when one considers the definition of being related under the Companies Act. The learned counsel relief upon the judgment of Lord Denning in .....

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aford Court Estates Ltd. s case (supra), Lord Denning observed as follows: "A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases." (p. 164) 91. With respect to the authorities referred to by Mr. Doctor, Mr. Nariman submitted that .....

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ot;. As far as Sajan Singh s case (supra) is concerned, Mr. Nariman pointed out that even in that case the plaintiff, who had acquired the legal title, was held entitled to succeed against the party to the illegality in detinue and trespass. He emphasised that this fact was also noted by the Full Bench of the Kerala High Court in Krishna Menon v. Narayana Ayyar AIR 1962 Ker. 21 (in para 10). That was a case where there was no provision making a contract of partnership in contravention of section .....

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as the owner of the properties. . . ." (p. 24) 92. Mr. Doctor, on the other hand, submitted that what is seen from B.O.I. Finance Ltd. s case (supra) is that illegality of an agreement cannot affect the transfer which had already taken place. With respect to this submission that the contract of transfer of shares between the transferors of defendant Nos. 3 and 4 and these two defendants is already executed. Mr. Nariman submitted that what the plaintiffs were concerned was the consequence o .....

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ll. He further submitted that regulation 20(4) of the regulations also indicates that the substantial acquisition is inextricably linked with the takeover. This is because the regulation provides that the directors of the company, of which the shares are being acquired are prohibited from selling or disposing of assets except in the ordinary course of the business during the offer period. This is, however, subject to a further exception of approval of the shareholders being granted in the genera .....

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quo. If such a provision was not there, the effect would have been that on the one hand the incoming party would have notified and made public announcement, whereas on the other the existing directors would have proceeded to take steps by divesting shares or by other method to defeat the public announcement made by the incoming party. The idea is to see to it that there are no clandestine operations on either side. Mr. Nariman submitted that it is necessary that both these provisions ought to b .....

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certain contingency, the acquisition of shares is restricted as also the transfer thereof. This is seen from sections 108A, 108B and 108C of the Companies Act itself. But over and above these provisions, section 108D of the Companies Act, retains a power in the Central Government to direct the companies not to give effect to certain transfers as mentioned therein and not to permit the nominees or proxies of the transferors from exercising voting rights. Section 108D provides in sub-section (1) .....

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share or block of shares and- (a )where the transfer of such share or block of shares has already been registered, not to permit the transferee or any nominee or proxy of the transferee, to exercise any voting or other rights attaching to such share or block of shares; and (b)where the transfer of such share or block of shares has not been registered, not to permit any nominee or proxy of the transferor to exercise any voting or other rights attaching to such share or block of shares." 94. .....

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during the pendency of the inquiry under sub-section (4) of section 111. Thus the violation of the provisions of the SEBI Regulation is a ground on which the right to vote can be curtailed as provided in the Act itself. Mr. Nariman, therefore, submits that there is nothing sacrosanct as such with respect to right to vote which is undoubtedly an important ingredient of holding this property in shares. He drew may attention in this behalf to a constitution Bench judgment in Charanjit Lal Chowdhury .....

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legislation amount to restrictions on proprietary right, they may very well be supported as reasonable restraints imposed in the interests of general public, viz., to secure the supply of a commodity essential to the community and to prevent a serious unemployment amongst a section of the people. They are, therefore, protected completely by clause (5) of article 19. . . ." (p. 57) The provisions of the very Act, namely, Sholapur Spinning and Weaving Co. (Emergency Provisions) Act, 1950 agai .....

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the resultant takeover arising out of the voting in a particular manner are two parts of the contract and it is the latter part which is yet to be completed. This being the position, it cannot be said that the contract of purchase of shares by defendant Nos. 3 and 4 is already acted upon and is no longer subsisting. Therefore, in his submission, the provisions of section 23 of the Indian Contract Act would still apply. 95. Considering the rival submissions made by the learned counsel on both si .....

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en away as a necessary requirement in regulations 9 and 10, the result of it would be that without making the announcement, shares will be purchased in bulk and SEBI will be requested that if at all there is any grievance, post facto announcement be permitted. It is seen very often that when shares are purchased in bulk and particularly with a view to takeover the company, the result thereof is to dislodge the existing management. This is not something which any existing management is likely to .....

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y requires free transferability (about which I will deal with later on separately) and right to vote, it equally requires transparency and openness in the functioning of the company and its takeover. Democracy, corporate or otherwise, implies an open system. It implies knowledge, information and availability of equal opportunity to everybody concerned. If that is not something as to be read in these regulations, then it is better that no such regulations are passed. The fact that some of these d .....

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t of this matter one will have to deal with problems as they are raised herein. In the circumstances, in my view, as the regulations stand, and if there is a breach of Regulations and particularly regulation 10 as in the present case, the party concerned cannot say that he will not suffer the consequences thereof. Whether there is prima facie a breach of the regulations or whether the same is brought out by the pleadings on record is another aspect which would be dealt with separately. Whether t .....

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aid of the main prayer and hence the reliefs claimed have got to be set up and justified in the plaint itself. The entire suit is principally based on violation of SEBI Regulations of 1994 and unless there is an allegation of fraud supported with particulars as required under order 6, rule 4, of the Code of Civil Procedure, the plaintiffs cannot make their case good. Besides, unless the plaintiffs state clearly as to what they are alleging, the defendants will face all the difficulties in defend .....

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as entered into, etc., will have to be pleaded so as to constitute a valid pleading so that the relief can be granted. He submitted that a positive and precise case has to be made out and that very case is to be put and one is not permitted to substitute and prove something else. He further submitted that fraud and conspiracy are like any other charge in a criminal proceeding and it has to be established beyond reasonable doubt and finding as to fraud cannot be based on suspicion and conjectures .....

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round or grounds are really taken up. There is a well-known rule of pleading expressed in the frequently quoted language of Lord Selborne in Wallingford v. Mutual Society that- With regard to fraud, if there be any principle which is perfectly well settled, it is that general allegations, however, strong may be the words in which they are stated, are insufficient even to amount to an averment of fraud of which any court ought to take notice. The law of India is in no way different from this, and .....

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influence and coercion, the parties pleading it must setforth, full particulars and the case can only be decided on the particulars as laid. There can be no departure from them in evidence. General allegations are insufficient even to amount to an averment of fraud of which any Ct. ought to take notice, however, strong the language in which they are couched may be, and the same applies to undue influence and coercion. See order 6, rule 4, Civil PC. 26. ****** 27. We will deal with the case of co .....

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in Ghughuli Rai s mind that the threat of death administered to him was real and imminent. But as regards the threat itself, there is not a single particular. We do not know the date, time and place in which it was administered. We do not know the circumstances we do not even know who did the threatening. Now when a Ct. is asked to find that a person was threatened with death, it is necessary to know these particulars, otherwise, it is impossible to reach a proper conclusion." (p. 283) In .....

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de v. J.K. Kadan [1998] 8 SCC 315 (paras 9 and 10). 98. In the context of fraud, Mr. Manohar specifically relied upon the judgment in the case of A.L.N. Narayanan Chettyar v. Official Assignee AIR 1941 PC 93, where the observations are quite relevant for the purposes of criminal as well as civil procedure. In that matter, sale was sought to be set aside on the ground of fraud at the instance of the official assignee. In the last para the Court observed: "There are other difficulties in the .....

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udge in para 9 in the case of Ashgar Ali v. Chidda AIR 1982 All. 186 : "9. Rule 4 of order 6 of the CPC is based on the principle that a charge of fraud, undue influence, etc., is a charge of a quasi criminal nature whenever it is alleged that a transaction is vitiated on account of fraud or undue influence, an insidious and unworthy conduct is attributed to the person who is said to be guilty of fraud and undue influence. The policy of law, therefore, is that the person charged with a frau .....

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at difficulty which is occasioned both to person charged with fraud or other improper conduct, and to the tribunals which are called upon to decide such issues, if the litigant who, prefers the charges is not compelled to place on record precise and specific details of those charges. In the present case the petitioner ought not to have been allowed to proceed with his petition and seek to prove fraud, unless and until he had, upon such terms as the court thought fit to impose, amended his petiti .....

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ally makes an allegation against defendant No. 1 and not against defendant No. 11. It alleges that between May 1995 and May 1997 defendant No. 1 through defendant Nos. 2 to 5 has acquired shares in contravention of law as detailed in sub-paragraphs of para 4. Thereafter, para 4(a) makes an allegation that defendant No. 2 has acted in concert with defendant Nos. 1 and 3 to 11 on 14-12-1993 to acquire 75,000 fully convertible debentures. Mr. Manohar pointed out that defendant No. 4 company was not .....

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of the plaint is that defendant No. 4 acted in concert in September 1996. As against that, the submission of the defendants is that defendant No. 4 purchased the shares much prior thereto from 11-11-1995 to 10-8-1996. The allegations against defendant No. 5 in para 4(d) are that in May 1997, it acquired further 3,64,750 shares in concert, whereas in fact it has acquired those shares from 27-8-1996 to 14-2-1997. Mr. Manohar submitted that the common understanding must precede such disputed purcha .....

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through individuals and unless those particulars are given, how could the defendants meet the case of the plaintiffs. This is because as per the plaint the conspiracy was going on from 14-12-1993 till May 1997, i.e., over a period of 3 years. Mr. Manohar relied upon the approach of the Supreme Court in Kehar Singh v. State (Delhi Admn.) AIR 1988 SC 1883 and submitted that unless precise particulars and proof are available, no conspiracy can be agitated. 101. Then Mr. Manohar submitted that where .....

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a Full Bench of the Nagpur High Court in the case of Vinayak Shamrao v. Moreshwar Ganesh Padhe AIR 1944 Nag. 44, wherein Bose, J., observed as follows: ". . . What he (i.e., Polock J.) did was to hold that the appellate court had not realised the difference between a real and a sham transaction and that though its finding purported to uphold the finding of the first court to the effect that the transaction was sham his reasoning indicated that he had not the distinction in mind. In this I .....

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es that it is dealing with real transactions and not sham ones; see as to this ILR (1943) Nag. 42 at p. 55. Therefore, when the learned Judge of the lower appellate court in one and the same breath holds that the transaction is bogus and at the same time says it can be avoided under section 53, T.P. Act, either he is not clear in his mind as to what bogus means or he is mistaken in thinking that bogus transactions either can or are required to be set aside; or he did not realise that section 53 .....

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to a similar effect. 103. Mr. Doctor also laid emphasis on this aspect, namely, that on one hand the plaint alleges in para 14 thereof certain fraudulent acts on the part of the defendants and thereby seeks a declaration in prayer (a), on the other hand in the affidavit of the defendant No. 12 in reply to the second motion, it was stated that the transactions were sham and were not to be acted upon. Mr. Doctor submitted that the transfers were undoubtedly meant to be acted upon and it was none o .....

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o different things. In his view, the plaintiffs were not clear as to what they were maintaining and where taking contradictory pleas from time to time. He referred to the judgment of the Supreme Court in Vinod Kumar Arora v. Smt. Surjit Kaur AIR 1987 SC 2179 to canvas that a cause of action is a bundle of facts which the plaintiffs must prove. The court observed ". . .the pleadings of the parties from the foundation of that case and it is not open to them to give up the case set out in the .....

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ngs, the opportunity was not availed of. The court observed in para 10 "It is well unknown that when an improper conduct is alleged it must be set out with all particulars". The court quoted with approval the observations in Wellingford v. Mutual Society [1880] 5 AC 685 (QB), which are to the following effect: "With regard to fraud, if there be any principle which is perfectly well settled, it is that general allegations, however, strong may be the words in which they are stated, .....

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Gulabchand v. Kudilal AIR 1966 SC 1734, wherein in the context of allegation of fraud in a civil case, the Supreme Court made a distinction in the matter of the criterion applicable and the appreciation of evidence in criminal cases as against the civil cases. The observations of Woodroffe, J. in Weston v. Peary Mohan Dass [1913] ILR 40 Cal. 898, were pressed into service before the Supreme Court, wherein the learned Judge has observed as follows: "And speaking for myself where, whatever b .....

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in insisting that such charges must be proved clearly and beyond reasonable doubt. In para 11, the Supreme Court observed as follows: "It is apparent from the above definitions that the Indian Evidence Act applies the same standard of proof in all civil cases. It makes no difference between cases in which charges of a fraudulent or criminal character are made and cases in which such charges are not made. But this is not to say that the court will not, while striking the balance of probabil .....

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e ordinary rules applicable to civil cases apply. The learned counsel has not been able to cite any other authority to show that there is any such well settled proposition, as stated by Meredith, J." (p. 1738) 105. Mr. Manohar had canvassed that the allegation of concerted action must be proved beyond reasonable doubt and relied upon the judgments in the case of A.L.N. Narayanan Chettiyar (supra) and Svenska Handel-sbanken (supra) amongst others. Another judgment in this line is one in the .....

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In Western s case (supra) favouring the contrary view. Mr. Nariman also relied upon the judgment of the Supreme Court in the case of Dr. N.G. Dastane v. Mrs. S. Dastane AIR 1975 SC 1534 which is a judgment of three Judges Bench. In para 25 thereof, the court held that proof beyond reasonable doubt is proof by a higher standard which generally governs criminal trials or trials involving inquiry into issues of a quasi-criminal nature. It is wrong to import such considerations in trials of a purely .....

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eme Court followed the earlier judgment of a Constitution Bench in preference to a subsequent one. He also referred me to the Supreme Court judgment in the case of General Manager, Telecom v. A. Srinivasa Rao [1997] 6 SCC 767, wherein the Supreme Court had held that the judgments in the case of T. Joseph [1996] 8 SCC 489 and Bombay Telephone Canteen Employee s Association [1997] 6 SCC 723, as not laying down the correct law since they were in direct conflict with the judgment by a Bench of seven .....

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eld as far as the Indian Courts are concerned. He, however, emphasised the part of the above observations that while striking the balance of probability, keep in mind the presumption of honesty or innocence or the nature of the crime or fraud charged. He submitted that even if one has to apply the standard of probability, the plaintiffs have to make out the case as disclosed in their pleadings. Mr. Nariman thereafter referred to the observations of the Supreme Court in the case of East Coast Com .....

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6, rule 10, of the Code of Civil Procedure which would govern the field. He submitted that the plaintiffs were pressing into service the inference that should be drawn with respect to meeting of minds and the fraudulent intention of the defendants. That was not something within the knowledge of the plaintiffs. The plaintiffs have given the particulars to the extent that were available to them, but lack of very precise particulars in this set of facts cannot lead to the plaint being rejected by a .....

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Herbertsons. They have filed the suit on the basis of whatever information they could get from defendant No. 12 company. Notwithstanding the long standing relation between the plaintiffs and Mallya family, that fact alone cannot be pressed against the plaintiffs contending that they ought to have given more particulars. In a case like this, one cannot have any strict evidence as to when the meetings were held between the persons concerned, at what place and as to how the planning was done, as s .....

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d yet it is covered by an issue by implication, and the parties knew that the said plea was involved in the trial, then the mere fact that the plea was not expressly taken in the pleadings would not necessarily disentitle a party from relying upon it if it is satisfactorily proved by evidence. The general rule no doubt is that the relief should be founded on pleadings made by the parties. But where the substantial matters relating to the title of both parties to the suit are touched, though indi .....

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l and one of them has had no opportunity to led evidence in respect of it, that undoubtedly would be a different matter. . ." (p. 738) The same is the approach of the Supreme Court in Ram Sarup Gupta v. Bishun Narain Inter College AIR 1987 SC 1242 wherein the court held that substance of the pleadings should be considered and it is not desirable to place undue emphasis on form. He then referred to a judgment of a Division Bench of this court (per Chagla, CJ.) in Lady Dinbai Dinshaw Petit v. .....

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mplaining of it, and in such a case the law requires that particulars of such an objective fact must be given. Similar is the case with breach of trust, wilful default, or undue influence or misrepresentation, all covered by the provisions of order 6, rule 4. But when a party is complaining of a state of mind of the other party and making a grievance of that state of mind, it is impossible to expect that party to give particulars of something which is subjective as far as the other party is conc .....

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at where the transactions speak for themselves and furnish internal proof of a well thought of design, there need not be an insistence on further particulars and documents. 108. The defendants had contended that plaint was not clear as to what was the cause of action and relied upon authorities in support. Mr. Nariman pointed out that all these authorities were in cases which were finally heard and decided. In the present matter, we are still at the stage of deciding an application for interim r .....

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ffs and their allegations that the defendants had acted in concert and that they had acquired shares in excess in violation of the law. He drew my attention to the reply of K.R. Chhabria and particularly para 12 thereof to make the same submission. 109. In the circumstances, it is not possible to say that the plaint is defective or is lacking in particulars. The defendants have understood the case of the plaintiffs and they are protesting too much. The plaintiffs have given particulars that coul .....

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etween the provisions of order 6, rule 4, and rule 10, is quite apt and applies with full force in the facts of the present case. The plaintiffs cannot be expected to give the particulars of time, date and place where the defendants arrived at the concerned design or as to which of the directors of these companies had entered into this conspiracy. This is a civil suit, wherein an inference based on probabilities is pressed into service. Whatever particulars are necessary to lay the foundation ha .....

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l case. One will have to strike the balance and decide the matter on probabilities although keeping in mind the presumption of honesty or innocence and the nature of fraud or concerted action alleged. Interpretation of Mr. Manohar as to whether the use of negative language makes the transaction void? 110. Mr. Manohar then submitted that the provisions in the concerned regulations were quasi criminal. Mr. Nariman had argued that in view of the use of negative mandatory language in the regulations .....

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the entire relevant Chapter III concerning the takeovers. He pressed regulation 37(2) in service to submit that even in the event of any investigation, the explanation of any such person in breach can be entertained. He submitted that the moment there is a power to exempt from penal provisions, the argument of voidness would no longer survive. He relied upon the judgment of the Supreme Court in the case of G.S. Lamba v. Union of India AIR 1985 SC 1019. That was a matter concerning Indian Foreign .....

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within the purview of the Union Public Service Commission and accepting for the time being that the Commission was not consulted before the power to relax the rule was exercised yet the action taken would not be vitiated nor would it furnish any help to Union of India which itself cannot take any advantage of its failure to consult the Commission. Therefore, it can be safely stated that the enormous departure from the quota rule year after year permits an inference that the departure was in exer .....

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o, there was a mandatory provision and penal consequences. The Supreme Court quoted the relevant paragraph of Maxwell on Interpretation of Statutes in para 18 to observe that the whole scope and purpose of the statute under consideration has to be seen and then in para 22 observed as follows: "22. In the present case the form prescribed set out a number of conditions and these have all been incorporated in the agreement which has been executed by the society. In other words the form has bee .....

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opinion on this, because in this case the terms as stated in the prescribed form are the terms in the form used. We have pointed out that no consequence attaches to the failure to observe the form except punishment by fine and section 18(2) is capable of being read as directory. Even if it be read as mandatory we have shown already that the failure of the appellant to sign the form is not a matter of which he can take advantage regard being had to his own conduct . . ." (p. 1425) In this co .....

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anding alone and apart from the rest of the Act, but in the light of the next following section 33A and if these two sections are read together, it is clear that the legislative intent was not to invalidate an order of discharge or dismissal passed in contravention of section 33, despite the mandatory language employed in the section and the penal provision enacted in section 31(1)." (p. 1000) "12. . . The very fact that even after the contravention of section 33 is proved, the Tribuna .....

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astern Railway Co. v. Berriman [1946] AC 278, wherein the Court observed as follows : "Where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however, beneficent its intention. Beyond the fair and ordinary meaning of its language. I quote and adopt the words of Aleson B : "The rule of law, I take it, upon the construction of all statutes. . . . is, whether they be penal or remedial, to construe them according to the plain, literal and gramm .....

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olaram v. State of Bombay [1955] 1 SCR 158, wherein the Supreme Court also reiterated the same proposition and referred to the above judgment : " The question that needs our determination in such situation is whether section 18(1) makes punishment, receipt of money at a moment of time when the law had not come into existence, and when there was possibility that the contemplated lease might come into existence. It may be here observed that the provisions of section 18(1) are penal in nature .....

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. Beriman, where penalty for infringement are imposed it is not legitimate to stretch the language of rule, however, beneficent intention, beyond the fair and ordinary meaning of language. . . . . .If the Legislature intended to make receipts of money on executory agreements punishable, the section would have read as follows : "receives any fine, premium or other like sum or deposit or any consideration other than the standard rent in respect of the lease or an agreement of lease of the pre .....

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that the concerned regulation 10 of 1994 had been specifically changed in 1997. He submitted that what the plaintiffs were trying to do was to ignore the words who holds shares carrying ten per cent or less of voting rights in the capital of the company , which occur in regulation 10(1), and wanted to add the words if any existing in the new regulations into regulation 10(1) of 1994. The regulation 10(1) of 1994 reads as follows: "10(1) An acquirer (who holds shares carrying ten per cent o .....

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. It would then read as under : "10(1) An acquirer shall not acquire any further shares in the company from the open market which when taken together with his existing shareholding if any would carry more than ten per cent of the voting rights, unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with these regulations." Mr. Manohar submitted that it is only if such a course is permitted that the plaintiffs can succeed in the .....

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interpretation of statutes is more firmly settled than the rule that the court must deduce the intention of Parliament from the words used in the Act . Applying such a rule, this court observed in S. Narayanaswami v. G. Panneerselyam AIR 1972 SC 2284, 2290 that where the statute s meaning is clear and explicit, word cannot be interpolated . What is true of the interpretation of an ordinary statute is not anytheless true in the case of constitutional provision, and the same rule applies equally .....

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ppa AIR 1961 SC 1107, 1115 this court : observed where the language of a statute, in its ordinary meaning and grammatical construction leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the essence. . . But, if the provision is clear and explicit, it cannot be reduced to a nullity by rea .....

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he must supplement the written word so as to give force and life to the intention of the Legislature and that he should ask himself the question how, if the makers of the Act had themselves come across the particular ruck in the texture of it, they would have straightened it out. I may only add, though even that does not apply, that Lord Denning wound up by saying, may be not by way of recanting, that a Judge must not alter the material of which the Act is woven, but he can and should iron out .....

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ing of the Act ; we cannot add, and mend and by construction, make up deficiencies which are left there. If the Legislature did intend that which it has not expressed clear ; must more, if the Legislature intended something very differently ; if the Legislature intended something pretty nearly the apposite of what is said, it is not for judges to invent something which they do not meet with in the words of the text (aiding their construction of the text always, of course, by the context); it is .....

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that meaning, and supply the defect in the previous Act." (p. 69) The judgment was quoted with approval by the Supreme Court in the case of Nalinakhya Bysack v. Shyam Sunder Haldar AIR 1953 SC 148, in para 9. Both these judgments are again referred to and quoted with approval subsequently by the Supreme Court in para 14 of a recent judgment in the case of P.K. Unni v. Nirmala Industries AIR 1990 SC 933. 115. With respect to allegations against the defendants, Mr. Manohar emphasised the disc .....

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the company (at p. 192 of motion No. 3932 of 1998), the United Breveries of Mallya group sold 26 per cent shares in Herbertsons to those very small companies which were referred to as ₹ 200 worth companies. Besides, it is an undisputed position that Herbertsons purchased the trademark Lord and Master from Chhabria Marketing Ltd. by paying ₹ 4.5 crore for that purpose as the non-competing consideration. In fact, the total consideration of the transaction was in the range of ₹ 8 .....

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was not the plaintiffs case that these transactions of the investment companies were their solitary transactions or that they were floated only for these transactions. Mr. Manohar submitted that in fact they were having other transactions as well. He further submitted that if defendant Nos. 3 to 5 had any collusion with defendant No. 11, it was inconceivable that defendant No. 11 would takeover those companies even before throwing out Vijay Mallya from the management of Herbertsons. He could hav .....

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of the Supreme Court in Prem Ex-Servicemen Co.op. v. State of Haryana AIR 1994 SC 1121 which states that the statements to be considered as admissions under section 21 of the Evidence Act must be read in their context. Besides, if one looks at the declarations, all that they stated were the names of the directors of the concerned company. Mr. Manohar, therefore, categorised these declarations as innocent declarations and that nothing much should be made out of them. 117. With respect to Regulati .....

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t acquisitions which were not covered earlier. Mr. Manohar referred to the judgment of the Supreme Court in Hawrah Trading Co. Ltd. case (supra) (at pp. 779-780) and Balkrishan Gupta s case (supra) to emphasise as to what constitutes holding of a share. On that background, he submitted that regulation 10 as it existed in 1994 has three ingredients. Firstly, one had to hold certain shares, secondly thereafter one had to acquire further shares and then that action has to be in concert with somebod .....

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was not hit and these 54,000 shares would be just 0.56 per cent. 118. Then Mr. Manohar submitted that it would be wrong to say that defendant Nos. 3 to 5 were in any way related companies. Such a concept was not defined under the Regulations and if one turns to the companies Act, the relation was defined under section 6 read with Schedule 1A thereof. Even Mr. Raheja did not fall in that concept vis-a-vis Mr. M.D. Chhabria, leave aside any of the directors of defendant Nos. 3 to 5. Mr. Manohar, .....

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service matter and the proposition in that matter is in the context of relaxing the service quota. The proposition, viz., that once there is a power to relax the mandatory quota rule, the appointments made in excess of quota will not be illegal is for recognising the reality of break down of quota in the area of service promotions. The proposition is evolved to see to it that persons promoted due to service exigencies are not unnecessarily made to suffer for no fault of theirs. The proposition .....

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the Cane Commissioner and then what is important is that as the Court holds, the failure to sign the form was sought to be used to the advantage of the party which did not conform the necessary form and the same was frowned upon. Similarly the judgment in the case of Punjab Beverages (P.) Ltd. (supra) is entirely on a different context of the Industrial Disputes Act wherein it is laid down that although there may be a contravention of section 33 of that Act, the Tribunal is permitted to go into .....

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otherwise have their own place and authority. However, as far as the present case is concerned, we are as of now in the realm of a civil dispute and the consequences of breach of these regulations for the purposes of takeover of a company and how it is to be prevented if it is illegal. We have not yet reached the stage of the prosecution for those breaches. As against this submission of Mr. Manohar, the reliance by Mr. Nariman on the judgment of the Supreme Court in Mannalal Khetan s case (supr .....

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ansferred. In fact, in the second suit filed by the defendants, in para 18 they have taken the same stand. He however, submitted that independent of that, a member may be a holder of shares but a holder may not be a member. This wider approach was adopted by the Supreme Court in the case of Worldwide Agencies (P.) Ltd. v. Margaret Desor [1990] 67 Comp. Cas. 607. The Court had approved the judgment of a Single Judge of Calcutta High Court in the case of Kedar Nath Agarwal v. Jay Engg. Works Ltd. .....

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of shares, but a holder may not be a member . A person whose name is on the register may have sold his share and from the moment his property in the share has passed to his purchaser he ceases to be a holder of those shares. Under section 81 such a person is not entitled to accept offers of new shares or to exercise any right of renunciation." (p. 102) Mr. Nariman then submitted that regulation 2(2) of the SEBI regulations requires us to refer to the Companies Act in difficulty. Section 81( .....

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regulations; that is the responsibility of the Court. He referred to the observations of Bennion in his commentary on Statutory Interpretation . Bennion has been subsequently quoted with approval by the Supreme Court in State of Tamilnadu v. State of Karnataka [1991] Supp (1) SCC 240 in a rival inter se dispute. In that case, in the context of Cauvery Water Disputes Tribunal, the Supreme Court held : "It is the judiciary, i.e., the courts alone that have the function of determining authorit .....

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n any other sense than is truly and properly the exposition of them. This is but one aspect of the court s general function of applying the relevant law to the facts of the case before it. The starting point is, therefore, to consider this function." It is the function of the Court alone to declare the legal meaning of an enactment. If anyone else (such as the draftsman of the provisions) purports to lay down what the legal meaning is the Court will tend to react adversely, regarding this a .....

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een lodged or transferred. 123. It is not possible to accept the submission of Mr. Manohar that the fact that certain provisions were specifically made in the 1997 Regulations to widen their coverage, clearly establishes that the coverage under the 1994 Regulations was a narrow one. Now, in this connection, it cannot be lost sight of that these Regulations are for the benefit of the shareholders, companies and society at large and hence while interpreting them one will have to adopt the purposiv .....

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s case (supra ) is instructive in this behalf. Derivative action 124. Then comes the question as to whether the present suit is filed by way of a personal action or whether it is a derivative action and secondly whether the plaintiffs have a right to maintain an action for rectification of the register, which does not disclose the correct picture of company s membership. In this behalf, Mr. Nariman all throughout maintained that the action of the plaintiffs was a personal action and was not by w .....

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leaded by the plaintiff, a personal action was permissible. There is of course the second aspect of this controversy as to whether in what circumstances and for what kind of rights such an action can be maintained and whether it is still available after the recent amendments to the Company Law in sections 111 and 111A. Three aspects of the present controversy on the basis of Company Law 125. Thus, there are three aspects of this particular controversy, namely, (1) Whether the kind of correction .....

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any s register and particularly the manner in which they have been amended from time to time. As can be seen from the legislative history of Companies Act, the earlier provisions, namely, section 23 of the Companies Act, 1857, section 34 of the Companies Act, 1866 and section 58 of the Companies Act, 1882 dealing with rectification were partly retained and partly altered in the Companies Act, 1913. Section 38 of the Companies Act, 1913 gave a power to the Court to rectify the register at the ins .....

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is fraudulently or without sufficient cause entered in or omitted from the register of members of a company; or (b)default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, the person aggrieved or any member of the company, or the company may apply to the court for rectification of the register. (2) The Court may either refuse the application or may order rectification of the register and payment by the company of any damage .....

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on necessary or expedient to be decided for rectification of the register : Provided that the Court may direct an issue to be tried in which any question of law may be raised, and an appeal from the decision on such an issue shall lie in the manner directed by the Code of Civil Procedure, 1908 on the grounds mentioned in section 100 of that Code." 127. The right of the person aggrieved or for that matter of any member of the company was retained when the Act No. 1 of 1956 came into force. A .....

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operation of law of the right to, any shares or interest of a member in, or debentures of, the company. (2) If, in pursuance of any such power, a company refuses to register any such transfer or transmission of right, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such trans .....

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peal to the Central Government against any refusal of the company to register the transfer or transmission, or against any failure on its part, within the period referred to in sub-section (2), either to register the transfer or transmission or to send notice of its refusal to register the same. (4) An appeal to the Central Government under sub-section (3) shall be made- (a )in case the appeal is against the refusal to register a transfer or transmission, within two months of the receipt by him .....

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to make their representations, if any, in writing, by order, direct either that the transfer or transmission shall be registered by the company or that it need not be registered by it; and in the former case, the company shall give effect to the decision forthwith. (6) The Central Government may, in its order aforesaid, give such incidental and consequential directions as to the payment of costs or otherwise as it thinks fit. (7) All proceedings in appeals under sub-section (3) or in relation t .....

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a public company : Provided that the Central Government may, in lieu of an order under sub-section (5) pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him, therefore, or such other sums as the Central Government may determine to be a reasonable compensation fo .....

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ion of the register. (2) The Court may either reject the application or order rectification of the register; and in the latter case, may direct the company to pay the damages, if any, sustained by any party aggrieved. In either case, the court in its discretion may make such order as to costs as it thinks fit. (3) On any application under this section, the court- (a )may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitt .....

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of Civil Procedure, 1908 (Act 5 of 1908)- (a )If the order be passed by a District Court, to the High Court; (b)If the order be passed by a Single Judge of a High Court consisting of three or more Judges to a Bench of that High Court." 128. Thereafter with effect from 31-5-1991 by the Amendment Act No. 65 of 1960, sections 111 and 155 were amended as follows : "27. Amendment of section 111 - In section 111 of the Principal Act,- (a ) in sub-section (2), for the words If, in pursuance .....

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n days of the receipt of the order shall be substituted; (d) after sub-section (5), the following sub-section shall be inserted, namely:- (5A) Before making an order under sub-section (5) on an appeal against any refusal of the company to register any transfer or transmission, the Central Government may require the company to disclose to it the reasons for such refusal, and on the failure or refusal of the company to disclose such reasons, that Government may, notwithstanding anything contained .....

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ay extend to one thousand rupees, and with a further fine which may extend to one hundred rupees for every day after the first during which the default continues. "36. Amendment to section 155-In section 155 of the Principal Act,- (a )in sub-section (1), for clause (a), the following clause shall be substituted, namely:- (a )the name of any person- (i )is without sufficient cause, entered in the register of members of a company, or (ii)after having been entered in the register, is, without .....

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tration of shares and making provision with respect to the circumstances wherein transfer of shares may be declined. Under sub-section (3)(c) thereof, the power to decline transfer of shares on the ground of its likely change in composition of the Board of directors was specifically provided. There was also a provision for a reference to the CLB. The said section 22A, which came into force on 17-1-1986, reads as follows : "Free transferability and registration of transfers of listed securit .....

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ning as are assigned to them in that Act. (2) Subject to the provisions of this section, securities of companies shall be freely transferable. (3) Notwithstanding anything contained in its articles or in section 82 or section 111 of the Companies Act, 1956, but subject to the other provisions of this section, a company may refuse to register the transfer of any of its securities in the name of the transferee on any one or more of the following grounds and on no other ground, namely:- (a )that th .....

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interests of the company or to the public interest; (d)that the transfer of the security is prohibited by any order of any court, tribunal or other authority under any law for the time being in force. (4) A company shall, before the expiry of two months from the date on which the instrument of transfer of any of its securities is lodged with it for the purposes of registration of such transfer, not only from in good faith, its opinion as to whether such registration ought not or ought to be ref .....

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(c)in any other case, make a reference to the Company Law Board and forward copies of such reference to the transferor and the transferee. (5) Every reference under clause (c ) of sub-section (4), shall be in the prescribed form and contain the prescribed particulars and shall be accompanied by the instrument of transfer of the securities to which it relates, the documentary evidence, if any, furnished to the company along with the instrument of transfer, and evidence of such other nature and s .....

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Board directs that the transfer of the securities to which it relates- (a )shall be registered by the company, the company shall give effect to the direction within ten days of the receipt of the order as if it were an order made on appeal by the Company Law Board in exercise of the powers under section 111 of the Companies Act, 1956; (b)need not be registered by the company, the company shall, within ten days from the date of such direction, intimate the transferor and the transferee according .....

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or a term which may extend to three years and shall also be liable to fine. (10) For the removal of doubts, it is hereby provided that nothing in this section shall apply in relation to any securities the instrument of transfer in respect whereof has been lodged with the company before the commencement of the Securities Contracts (Regulation) Amendment Act, 1985." 130. Thereafter with effect from 31-5-1991 the entire section 111 was substituted by a new section by the Amendment Act No. 31 o .....

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ase may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Company Law Board against any refusal of the company to register the transfer or transmission, or against any failure on its part within .....

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(i )is, without sufficient cause, entered in the register of members of a company, or (ii)after having been entered in the register, is, without sufficient cause, omitted therefrom; or (b)default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be, a member including a refusal under sub-section (1), the person aggrieved, or any member of the company, or the company, may apply to the Company Law Board for rectification of th .....

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, if any, sustained by any party aggrieved. (6) The Company Law Board, while acting under sub-section (5), may, at its discretion, make- (a)such interim orders, including any orders as to injunction or stay, as it may deem fit and just; (b)incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares. (7) On any application under this section, the Company Law Board- (a)may decide any question relating to the title of any person who is a party to the .....

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s section, the company and every officer of the company who is in default shall be punishable with fine which may extend to one thousand rupees, and with a further fine which may extend to one hundred rupees for every day after the first day after which the default continues. (10) Every appeal or application to the Company Law Board under sub-section (2) or sub-section (3) in writing and shall be accompanied by such fees as may be prescribed. (11) In the case of a private company which is not a .....

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ecified in the order acquire the right aforesaid within such times as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him therefor or such other sum as the Company Law Board may determine to be a reasonable compensation for the right in all the circumstances of the case. (12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which m .....

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sub-section (14) was added to section 111 whereby the provisions of section 111 were restricted to the private companies. This added sub-section (14) reads as follows : "(14) In this section company means a private company and includes a private company which had become a public company by virtue of section 43A of this Act." 131. Then an entirely new section 111A was included to govern the field of public companies. This new section provided for rectification of register on transfers .....

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the Securities and Exchange Board of India, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any company or depository to rectify register or records if the transfer of the shares or debentures is in contravention of any of the provisions of the Securities and Exchange Boar .....

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or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. (6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended. (7) The provisions of sub-sections (5), (7), (9), (10) and (12) of secti .....

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ause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares." Substitution of sub-section (3) by the following : "(3) The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities and .....

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f the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or record." The result of all these amendments, additions and alterations under section 111 is that now we have one mechanism for private company whereas there is a different mechanism and arrangement with respect to public company under section 111A with which we are more concerned in the present case. Whether right of rectificat .....

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cified now need not mean that a suit by a member of a public company was barred because that was a right which existed prior to section 155 and it was founded on law of contract with its origin in common law. The earliest judgment which he referred in this context was T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd. AIR 1928 Mad. 571. In that case, the respondent-company had refused to register the shares purchased by the applicant. The question before the Court was as to whether th .....

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ature that such remedies should be enforced only in the manner and by following the procedure indicated. No doubt it is open to the Legislature even in other cases to take away any subsisting general right of suit and provide a special remedy instead, but it must be done by express provision and such a general right is incapable of being taken away merely by implication." (p. 572) The Judges of the Division Bench then referred to two earlier judgments. In Manilal Brijlal Shah v. Gordhan Spg .....

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uot;I respectively agree entirely with those observations. If the principle is that the provisions contained in and the procedure prescribed by a certain enactment are exhaustive and it should be open to parties to seek for such reliefs in regular actions only to cases where the enactment can be said to create entirely a new sphere of rights and obligations, it becomes important to discuss the question in this case whether the Indian Companies Act must, having regard to its true nature, be regar .....

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ther business. It is clear that the scope of the Act is regulative and it is concerned only with making provisions in respect of rights and obligations which would have existed apart from the Act. In all such cases the true principle is that though remedies are provided in the enactment, the general right of suit cannot be considered as taken away merely by reason of such provision and except by express enactment. The objection, therefore, that the appellant-plaintiff had no right of suit must b .....

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n was in this Court). The learned Judge expressed that he was entirely in agreement with the reasoning of the Division Bench. He referred to an earlier judgment in the case of Rao Saheb Manilal Gangaram Sindore v. Western India Theatres Ltd. [1963] 33 Comp. Cas. 826. In that case, J C Shah, J. (as he then was in this Court) held- "Now it is clear to my mind that even for the relief contemplated by section 155 of the Companies Act, 1956 a suit would be a primary remedy under the general law. .....

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f this Court (per K.K. Desai, J.) in Jayashree Shantaram Vankudre v. Rajkamal Kalamandir (P.) Ltd. [1960] 30 Comp. Cas. 141 . In that matter, the Court held that complicated questions of fabrication and forgery were involved. The Court took the view that a petition under section 155 was not the correct remedy therefor but a suit would be the proper remedy. The Court observed that "filing a suit for rectification is not unknown and is generally resorted to where rights of third parties are c .....

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court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the applicant to institute an action for rectification. An action may, without any direction by the court, be instituted for rectification of the register, a course which should be followed where there is much complexity, or .....

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ight to exercise his vote and to have it correctly assessed as against the votes of the other rightful shareholders, and his right to acquire new shares in the company pro rata with other rightful shareholders. An entry in the register which is bad or illegal affects these rights of the individual shareholder. He is thereby prejudiced and aggrieved. The right to rectify was recognised at common law and was translated into the statutes. English and Indian. (The provisions of section 116 of the En .....

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o can maintain a petition under section 155 of the Indian Companies Act, or section 116 of the English Act, is directed to file a suit because the matter is complex, and is then told that he is not entitled to maintain the suit because he is not a person aggrieved." (p. 502) 136. Similarly of particular significance is the judgment of M. Jagannatha Rao, J. (as he then was in Andhra Pradesh High Court) in the case of Avanthi Explosive (P.) Ltd. v. Principal Subordinate Judge [1987] 62 Comp. .....

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erhampton New Waterworks Co. v. Hawkesford [1859] 6 CB (NS) 336 which was also referred to before the Supreme Court in Premier Automobiles Ltd. s case (supra). Thereafter the learned Judge posed a question as to whether the rights and obligations in question in that particular case owed their very creation to the Companies Act or whether they were traceable to a basic contract which had come to be statutorily regulated. The learned Judge went into the historical background of the amendments to t .....

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shares the proportionate holding of the plaintiff would have gone down and in a sense there also the plaintiff was asserting a personal right. Mr. Chidambaram submitted that the said judgment of the learned single Judge in Om Prakash Berlia s case (supra) was no longer good law in view of the same being overruled by a Division Bench in UTI v. Om Prakash Berlia [1983] 54 Comp. Cas. 723 (Bom.). Mr. Nariman, however, pointed out that the said appeal was allowed on other aspects of the matter and n .....

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t be, at one and the same time, more than one operative order governing the same subject-matter. Therefore, the judgment of an inferior court, if subjected to an examination by the superior court, ceases to have existence in the eye of law and is treated as being superseded by the judgment of the superior court. In other words, the judgment of the inferior court loses its identity by its merger with the judgment of the superior court. 11. To 17. ****** 18. The fundamental reason of the rule that .....

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Mr. Nariman, on the other hand, submitted that this judgment was on doctrine of merger which was relevant for ascertaining as to which was the final executable order, and had nothing to do with precedents. He pointed out that this position had been clarified in State of Orissa v. Krishna Stores [1997] 3 SCC 246, wherein para 13 the court observed : "In the case of State of Madras v. Madurai Mills Co. Ltd., this court, however, observed that the doctrine of merger was not a doctrine of rigi .....

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) could not be cited as a proposition that even if a part of the judgment of a trial court is not reversed, that would not be binding as a proposition of law. What we are concerned here is as to whether the observations of Bharucha, J (as he then was in this Court) with respect to individual shareholder s right in having a correct register of members any longer holds the field. Mr. Nariman in this behalf referred to a judgment of a Division bench of the Gujarat High Court in Shri Prithvi Cotton .....

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wherein the Supreme Court had held by a majority of four versus one that a rate was a levy on beneficial occupation and it included only a levy based on annual letting value and could not take within its purview a levy based on capital value. This point was not argued in the High Court. The appeal was allowed on this point and the majority Judges did not deal with the question of competence and kept the question open - Patel Gordhandas Hargovindas v. Municipal Corporation AIR 1963 SC 1742. Ther .....

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decision of the High Court in Gordhandas Hargovandas s case (supra) had no legal existence at all since it was reversed by the Supreme Court. The High Court, however, held in Shri Prithvi Cotton Mills Ltd. s case (supra) that the earlier decision, which had been reversed, continued to constitute a binding principle on the question of legislative competence. This decision of the Gujarat High Court in Shri Prithvi Cotton Mills Ltd. s case (supra) was challenged before the Supreme Court and the Su .....

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principle that, when a decision of one court is reversed in appeal by another court, then the decision of the appellate court gets substituted to the decision of the other court and the decision so reversed has no legal existence. We are unable to agree that any such principle is applicable for determining the binding nature of a decision of a court. The principle, undoubtedly, applies vis-a-vis decrees of the higher and the lower courts. It may apply to the decisions of the same two courts on .....

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nals which are subordinate or co-ordinate to the court recording the decision. . . ." (p. 136) Mr. Nariman, therefore, submits that the proposition of Bharucha, J. (as he then was in this Court) in Om Prakash Berlia s case (supra) holds good as far as this Court is concerned inasmuch as the maintainability of the suit on that behalf was not disturbed by the Appeal Bench though the appeal had been allowed on other points. 140. Mr. Nariman submitted that the remedy of a suit being available i .....

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use relief under section 155 and relegate the parties to a suit. But the point as to the invalidity of the notice, dated 20th January, 1957 could well be decided summarily, and the courts below rightly decided to give relief in the exercise of the discretionary jurisdiction under section 155. Having found that the notice was defective and the forfeiture was invalid, the court could not arbitrarily refuse relief to the respondents." (p. 492) The above observations of the Supreme Court subseq .....

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e contrary view was taken by other High Courts including Gujarat High Court and Kerala High Court. Thereafter it was canvassed before the Supreme Court that the decision in Public Passenger Services Ltd. s case (supra) was per incurium. This submission was subsequently negatived by the Court by observing as follows : "12. . . . In order to resolve this conflict as aforesaid the Delhi High Court in the case of petitioner company relying on Public Passengers Service Ltd. AIR 1966 SC 489 (supr .....

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have no hesitation to reject such a submission. This issue was directly there and was considered with respect to the interpretation of section 155 and was a case not under 1913 Act but 1960 Act hence by no stretch of imagination it could be said that the said decision is per incuriam. . . ." (p. 3157) 141. The learned counsel appearing for the defendants tried to impress upon me by relying different passages from the judgments of the Supreme Court in Ammonia Supplies Corpn. (P.) Ltd. s cas .....

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51 what happened was that on a reference being made, a Full Bench of the Delhi High Court by its decision dated 11-10-1993 (per Sabharwal, J., as he then was in that Court) held that the jurisdiction under section 155 was discretionary and summary in nature and that the remedy of suit for adjudication of dispute relating to the title to shares was not barred. The decision rendered thereafter (on 16-5-1994) on the matter being relegated, was carried in appeal to the Supreme Court. The Supreme Cou .....

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d, they were left totally undisturbed by the Supreme Court. The ratio of the judgment is in para 31 where it was held as follows : ". . . There is nothing under the Companies Act expressly barring the jurisdiction of the Civil Court, but the jurisdiction of the court as defined under the Act exercising its powers under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the civil court is impliedly barred. We have already held above the jurisdiction .....

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ister by way of filing of a suit is a right recognised in common law and translated into the statutes. That would be available where the matter can be more conveniently decided in a suit by reason of its complexity or otherwise as held by the Apex Court in Public Passenger Services Ltd. s case (supra) and confirmed in Ammonia Supplies Corpn. (P.) Ltd. s case (supra). It is also clear from the observations of Bharucha, J. in Om Prakash Berlia s case (supra) quoted above that this right is availab .....

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question as to whether section 111A as subsequently amended and its scheme brings about any change over and above the position as it existed earlier. Mr. Chidambaram, the learned counsel appearing for defendant No. 11, submitted that free transferability was the objective in bringing about the amended position as it exists now. He said that the policy of the law now is as follows : "(a)Shares of a public limited company are freely transferable and the registration of transfers is mandatory .....

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on that no other authority can issue any such direction. (c )Even when registration of shares is in dispute, the shareholders or further transferees are entitled to voting rights unless the voting rights are expressly suspended by an order of the Company Law Board. [Section 111A(6)] (d)Parliament has now made a deliberate departure. Earlier section 38 of the Companies Act, 1913 and section 155 of the Companies Act, 1956 allowed the members of the company to seek the rectification of the membersh .....

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mpany Law Board and by no other device." 144. Mr. Chidambaram submitted that the entire objective behind these provisions was to remain in tune with the idea of free enterprise which was now gaining ground in this country. Free enterprise requires free transferability of shares and when the Legislature makes a deliberate departure, addition and omission, the Court should take note of the same and give effect to the change brought about by the Parliament. He relied upon the judgments of the .....

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e different words in relation to the three sections, transaction in section 4, matter in section 5 and description in section 6." (p. 38) In A.P. Burhanpur Tapti Mill s case (supra) the Court was concerned with two provisions of the CP & Berar Industries Disputes Act as to whether the words describing a strike as rendered illegal are same as held illegal and the Court held that when different phraseology had been used, the conclusion is irresistible that this was done deliberately . He .....

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he Act and to expand its meaning. Now sections 34 and 35 of the Act are made applicable to a "person", and expression which is section 36 is altered to "pauper"; and it is a rule of construction that where in the same Act of Parliament, and in relation to the same subject-matter, different words are used, the court must see whether the Legislature has not made the alteration intentionally, and with some definite purpose; prima facie such an alteration would be considered inte .....

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s no specific bar as such against filing of a suit in the concerned context, it will have to be read into the provision. 145. Mr. Nariman, in this connection, referred to two judgments of the Supreme Court. Firstly, State of Tamil Nadu v. Ramalinga Samigal Madam AIR 1986 SC 794 and then Raja Ram Kumar Bhargava v. Union of India AIR 1988 SC 752. In the judgment in Ramalinga Samigal Madam s case (supra), the Court was concerned with the question as to whether the remedy of filing civil suit was av .....

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r Automobiles case (supra) and observed : "Generally speaking, the broad guiding considerations are that wherever a right, not pre-existing in common law, is created by a statute and that statute itself provided a machinery for the enforcement of the right, both the right and the remedy having been created uno flatu and a finality is intended to the result of the statutory proceedings, then, even in the absence of an exclusionary provision the civil court s jurisdiction is impliedly barred. .....

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eld that the right to seek rectification of the register is a common law right. In Om Prakash Berlia s case (supra), it has been held to be a right available when certain additional shares were being given to third parties. Thus, if it was a common law right and for which now a new statutory remedy has come to be provided by an approach to the CLB without excluding the civil court s jurisdiction, then both the remedies would be available to a litigant with a right to elect. 146. Mr. Dada, the le .....

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ubmission, the learned counsel for defendant No. 1, Mr. Salve relied upon the judgment of the Supreme Court in V.B. Rangaraj v. V.B. Gopalakrishnan AIR 1992 SC 453, wherein, Sawant, J. referred to Pennington s Company Law, 6th edn., p. 753 and observed : "Dealing with restrictions on transfer of shares in Pennington s Company Law (6th edn.) at p. 753, it is stated that shares are presumed to be freely transferable and restrictions on their transfer are construed strictly and so when a restr .....

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ion 22A(2) of the Securities Contracts (Regulation) Act, 1956 and yet under the law, as it existed prior to 1995, members right to seek rectification of other s share was expressly recognised under section 111 as it then stood. That was also the position under section 155 until 1991 when it was deleted. As seen above, inspite of there being the provision of free transferability, the Central Government has retained the power to restrain the voting rights in certain situation under section 108D. T .....

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r other objectives under the regulations such as transparency, competition and participation. 147. It has come to be recognised, as seen earlier, way back in 1951 - Charanjitlal Chowdhury s case (supra) that right to vote of a member of a company is a statutory right and in that case it was curtailed under the Ordinance under which the management of Solapur Spg. & Wvg. Mill was taken away and it was held not violative of article 19 of the Constitution. A right given by a statute can always b .....

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his purpose. In Papanasan Union s case [1995] 1 JT (SC) 71, such curtailment of the right for a limited period was held to be justified in para 19. In the facts of the present case, therefore, if a party makes out a case that shares have been acquired in breach of the provisions, the wording of which is negative and mandatory, the consequences will have to follow. 148. It is true that under section 111A a remedy has been provided by way of a necessary application to the CLB to 5 categories of en .....

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that the other members will not have an approach to the CLB. Can it, however, mean that the access, which they otherwise had all throughout to the civil court, is no longer available now under the law? The answer was in the negative when Ammonia Supplies Corpn. (P.) Ltd. s case (supra) was decided by the Supreme Court, and in my humble understanding, in spite of the changes in section 111A, the answer will continue to be in the negative and the remedy by way of filing of a civil suit cannot be s .....

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lable only to certain categories of people on certain grounds as specified under section 111A. It was submitted by them that even if there is any breach of any provision, now the wording of section 111A made it necessary that the company had no option but to transfer the shares and if aggrieved, all that it could do was to appeal to the CLB to get such members removed from the register. It was submitted by Mr. Chidambram and others that in any case in the meanwhile the voting rights shall contin .....

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more the civil court for rectification of the register is concerned, Mr. Nariman submitted that if one looks to the 1994 Regulations, it was clear that the shareholders were given a right to complain to the SEBI under regulation 33(2)(a). The shareholders were also given a right to give a public bid and to receive the highest price when offered by successful bidder. In the circumstances, Mr. Nariman submitted that the plaintiffs did have a stake or a locus as members of the company. He stated t .....

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ecific provision is made, the right to sue cannot be taken away. The Supreme Court observed in the aforesaid matter as follows : ". . . There is a basic distinction between the right of suit and the right of appeal . There is an inherent right in every person to bring a suit of a civil nature and unless the suit is barred by statute one may, at one s peril, bring a suit of one s choice. It is no answer to a suit, howsoever, frivolous the claim, that the law confers no such right to sue. A s .....

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be the grounds on which such a suit can be entertained for rectification. Mr. Nariman in this connection submitted that the grounds which are available under section 111A (3) which were originally contained in section 38 and section 155 will be available to the plaintiffs. They will be so available under the clause of sufficient cause which existed under the proviso to section 111A(2). Mr. Nariman submitted that even additional grounds would be available but, in any case, his case was of violati .....

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er. Mr. Nariman, however, pointed out that section 111A(2) proviso cannot mean that the CLB has to allow all the appeals seeking registration of transfer of shares, whatever may be the facts. It can reject it for sufficient cause. Now section 111A(7) refers to other clauses of section 111 which are saved and made available under section 111A. Once such clause is clause (7) which is with reference to title. Mr. Nariman, therefore, submitted that if there is no valid title, or if a title is sought .....

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es Corpn. (P.) Ltd. s case (supra). Mr. Nariman in this context referred to me the order of the CLB, Western Region, Mumbai in the case of Estate Investment Co. Ltd. v. Siltap Chemicals Ltd. [1999] 32 CLA 409 . In para 17, the CLB has discussed as to what sufficient cause would mean under the section. Mr. Nariman drew my attention to those observations for my approval. Mr. Nariman in this contexts also referred to section 9 of the Act to submit that section 9 restricts the right of a member and .....

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sferability of shares as submitted by Mr. Chidambaram. Mr. Nariman in this context referred me to the observations of the Supreme Court in para 84 in the case of LIC of India (supra). In that para, the Supreme Court held that "a shareholder has undoubted interest in a company, an interest is represented by his shareholding. Share is movable property". Thereafter the Supreme Court has held as under : ". . . Where the transfer is regulated by a statute, as in the case of a transfer .....

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ny who is so asked to register the transfer of shares may not refuse to register the transfer except for a bona fide reason, neither arbitrarily nor for any collateral purpose. The paramount consideration is the interest of the company and the general interest of the shareholder. On the other hand, where, for instance, the requisite permission under the FERA is not obtained, it is open to the company and, indeed, it is bound to refuse to register the transfer of shares of an Indian company in fa .....

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1991 SC 1420, wherein even before coming into operation of the Regulatory Code of 1994, the Supreme Court had disapproved the cornering the shares and clandestine transactions entered into surreptitiously by holding that it would be against public policy and illegal and void under section 23 of the Indian Contract Act. The Supreme Court observed as under : "68. We cannot subscribe to the contention raised by Dr. Singhvi that there was nothing wrong or illegal even if the action of Reliance .....

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ome public financial institutions as a conduit in a clandestine manner, such deal or transactions would be contrary to public policy and illegal. . . ." (p. 1442) Mr. Nariman also pressed into service a judgment of the Chancery Division in the case of Transatlantic Life Insurance Co. Ltd. [1979] 3 All ER 352, wherein the Chancery Division has held that where the acquisition of shares was effected without the consent of the treasury and which was necessary under the law, the same was vitiate .....

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at it clearly shows that but for the segregation of votes it was done at the instance of the plaintiffs, the defendants had a clear majority and the objective in seeking the segregation of votes and the injunction in the present suit was to perpetuate the minority shares. Mr. Doctor further submitted that the segregated votes ought to be permitted to be counted. However, the plaintiffs were not satisfied with that limited order which was passed on 21-12-1998 and it was, therefore, only that they .....

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e 46 also indicated that the learned functionary had intervened and advised SEBI to function in a particular manner. Mr. Doctor criticized this conduct on the part of the plaintiffs and the manner in which SEBI succumbed to these pressures. He submitted that this was not expected from a high functionary like the former chairman of SEBI Committee nor was it expected from the SEBI which was supposed to function as an independent authority. 156. Then commenting at para 8 of the plaint, Mr. Doctor s .....

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the then management and thereby the plaintiffs were happy. But as can be seen from para 10 of the plaint, the plaintiffs decided to file the suit only because the defendants decided to dislodge them because of the rejection of the shares in favour of Shirish. Mr. Doctor, therefore, submitted that the commercial interest of the plaintiffs are sought to be made the basis of the plaint to deny them voting rights to the majority of the shareholders. This cannot be permitted. 157. Mr. Doctor submitt .....

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ion can be obtained orally. The information consisted of the precise shareholding of various defendants and the documents in support thereof. How could all this information can be gathered orally. Obviously the statement was not a true one and it was made to hide the collusion between the plaintiffs and the company, but for which the plaintiffs would not got the entire information to file the suit. Similarly, the defendants attorney specifically asked information by sending a notice to the plain .....

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ial purpose. This could not be styled even as a derivative action which is supposed to be on behalf of the body of shareholders on the company who could not act on their behalf in their protection. He relied upon a judgment of the Chancery Division in the case of Towers v. African Tug Co. [1904] 1 Ch. 558. Mr. Doctor submitted that the only right which a shareholder had was to receive dividends and to vote in the general body meeting of the company. In the present case, the plaintiffs had admitt .....

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bring this action, which, as I have pointed out, is, to my mind, an action such as they can bring in consequence of their personal interest in the matter? I think not. I think that an action cannot be brought by an individual shareholder complaining of an act which is ultra vires if he himself has in his pocket at the time he brings the action some of the proceeds of that very ultra vires act. Nor, in my opinion, does it alter matters that he represents himself as suing on behalf of himself and .....

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bmitted that the defendants are entitled to point out as to how the plaintiffs were acting as agents of the company not for the welfare of the majority of the shareholders but for their own personal aid and for the benefit of the Mallya group and the defendants were entitled to point out the personal objections against the individual shareholder. They are got to be considered before it is decided to grant any relief to such plaintiffs. Mr. Doctor then relied upon the judgment of the Court of App .....

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can be done for the benefit of the company, whoever comes forward to start the proceedings must be doing so for the benefit of the company and not for some other purpose. It follows that the court has to satisfy itself that the person coming forward is a proper person to do so. In Gower Modern Company Law, 4th edn. [1979], the law is stated, in my opinion correctly, in these terms, at p. 652: The right to bring a derivative action is afforded the individual member as a matter of grace. Hence, th .....

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alf of the company and that the company itself will benefit. A particular plaintiff may not be a proper person because his conduct is tainted in some way which under the rules of equity may bar relief. He may not have come with "clean hands" or he may have been guilty of delay." (p. 377) Later on, the court quoted with approval the earlier cited observations in Towers case (supra ). 159. Then, Mr. Doctor relied upon the judgment of the Court of Appeal in the case of Prudential Ass .....

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inority shareholder the question whether in fact the company was controlled by the alleged wrongdoers should first be determined before the derivative action itself was allowed to proceed." (p. 355) Later, in the judgment, the Court of Appeal discussed that, as laid down in the leading case of Foss (supra), an individual shareholder cannot bring an action into courts to complaint of an irregularity (as distinct from illegality) in the conduct of the company s internal affairs provided that .....

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the credentials of the concerned minority will have to be gone into. In the case like this, the action must be against the management of the company to throw it out and not to tolerate as it was canvassed in East Pant Du United Lead Mining Co. Ltd. v. Merryweather [1864] 2 Hem & M 254: "If a minority of a company were allowed to file a bill in the company s name, charging fraud against some of the majority, and alleging that those persons were not to be considered as shareholders or en .....

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se of the attempt to get the shares of Shirish (defendant No. 5) registered. That indicated the attempt to dislodge the present management on the part of the defendants. According to the plaintiffs, the shares of Shirish were rightly rejected but it was at that stage that the plaintiffs decided to file the suit. Similar is the stand of the company, as can be seen from the affidavit of Mr. Raghunathan in support of the second notice of motion at p. 162, wherein Mr. Raghunathan has stated that on .....

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was after the rejection of shares sought to be transferred on behalf of Shirish. This can be seen at p. 438 of the compilation. Hence, Mr. Doctor submitted that the declarations of 17-4-1997 upon rejection of shares of Shirish was not at all the real ground. The real intention was to obstruct the majority from exercising its rights and to perpetuate the minority group. This very thing was specifically there in Merryweather s case (supra) and that was sought to be achieved through the present sui .....

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or an ulterior purpose, or if another adequate remedy was available, the court would not allow the derivative action to proceed. 162. Mr. Nariman pointed out that it was open to the shareholder to initiate a personal action. He made it clear that the actions by the plaintiffs was not a derivative action on behalf of the other shareholders of the company. He submitted that many allegations were made against the plaintiffs with respect to the alleged improper invoicing on their part as the distrib .....

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personal action. He relied upon the following passage from Palmer s Company Law, 24th edn. 1987 at p. 978. "The derivative action is subject, however, to the doctrine of clean hands. As an equitable invention, the derivative action cannot be used to do injustice. The principle has been applied in cases of acquiescence by the plaintiff shareholder in the wrongdoing of which he later complains and in cases where the plaintiff has been regarded as the puppet of outsiders whose interests are op .....

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lly to the interests of the appellant and their conduct in taking various proceedings against the appellant is reprehensible. Counsel then relied upon the well known maxim of equity that he who comes into equity must come with clean hands and contended that the courts below should have dismissed the applications as the respondents did not come with clean hands. This contention must be rejected for several reasons. The respondents are not seeking equitable relief against forfeiture. They are asse .....

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er vexatious proceedings started by the respondents have no relation to the invalidity of the forfeiture and the relief of rectification and are not valid grounds for refusing relief." (p. 492) Mr. Nariman, therefore, submitted that as observed in Palmer s Company Law, the requirement of clean hands does not apply to personal action and again, as observed by the Supreme Court, one who comes to court must come with clean hands does not mean that every improper conduct of the applicant disent .....

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ext, Mr. Nariman referred me to a judgment of the Chancery Division in the case of Mutter v. Eastern & Midland s Railway Co. 38 Ch. D. 92. In that matter, the defendant company had declined to give copies of the debentures stock register to the plaintiff. The trial court had decided in his favour. In appeal, it was contended that he did not have such a right under the statute, he was not a bona fide shareholder but a nominee of a rival company and there was a want of condour in his affidavit .....

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to contend that the resolution altering the article and increasing the capital was ultra vires. Relying upon the earlier judgment in the case of Towers (supra), it was stated that it was impermissible. In that case, the plaintiff has with full knowledge received a dividend and still wanted to have a remedy against the directors to refund to the assets of the company the amount which had been wrongfully abstracted from the capital. In Mosely s case ( supra), what was sought was a prevention of t .....

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ry large number of shares, which the plaintiff says are not authorised to be issued by the defendant-company or the directors at the present time. Mr. Upjohn takes a preliminary objection to this effect. He says, "You, the plaintiff, were a moving party to the passing of the resolutions which authorised this issue. You, yourself, have taken certain shares under an earlier issue made in pursuance of those resolutions, and there is a personal exception to your position as plaintiff, and, what .....

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a personal order upon the directors to refund to the assets of the company the amount which had been wrongfully obstructed from the capital. The company retaliated by saying: "You, the plaintiffs, yourselves received this dividend with full knowledge of all the facts, and, by way of counter-claim, we ask that you will repay to the company the dividend which you have wrongfully received." That was an action in which, but for extraordinary circumstances, the company itself would have be .....

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a plaintiff suing on behalf of himself and all other shareholders in a representative character is allowed to seek relief which properly or under any ordinary circumstances could be enforced by the company itself. In a case of that kind it was said in Towers v. African Tug Co. that a plaintiff who had himself with full knowledge received a dividend, and still had it in his pocket, was not a person who could be allowed under the peculiar procedure of the court to claim a remedy against the direct .....

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nd who, as it may be, received shares or money in years gone by in respect of that transaction, it disabled from saying to the court that what this company proposes to do in future is illegal and improper and asking the court to restrain them from doing it. In the decision in the case of Towers v. African Tug Co. (a decision to which I was myself a party, and which I see no reason whatever to question, if it were open to question) there is nothing, in my view, which has any bearing on the rights .....

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ong again in the future". In my opinion, there is nothing in the preliminary objection taken by Mr. Upjohn, assuming as I do the accuracy of all the facts which he opened on this point, which prevents us from considering this appeal." Similar view is taken by a Division Bench of this court in the case of Sulleman Somji v. Bank of Bombay 31 Bom. LR 319. In that case, it was contended that the sole object of the appellant is seeking inspection was to cause annoyance to the bank officials .....

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uthority to occupy a public office are involved, such propositions are not to be dismissed merely on the ground of laches at the admission stage without examining the contention in it. In para 34, the Court observed as follows : "34. In our opinion, the exercise of discretion by the court even where the application is delayed, is to be governed by the objective of promoting public interest and good administration; and on that basis it cannot be said that discretion would not be exercised in .....

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elf would not disentitle the plaintiffs from canvassing their submissions. In this context, Mr. Nariman pointed out that the plaintiffs had at no point of time consented nor were they parties to any of the resolutions whereby the illegal transfer of shares to Imfa and Mahameru was sanctioned by the respondent-company on 30-5-1996 or thereafter. The plaintiffs were not even directors of the respondent-company nor were they present or have voted in favour of the aforesaid resolution which is sough .....

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s was in the context of the allegation of the defendants that the plaintiffs have faulted the efforts of Imfa, K.R. Chhabria or M.D. Chhabria to make a public offer even ex post facto. As far as the period prior to the suit is concerned, it can be seen from the letter dated 7-12-1995 that Imfa wrote to SEBI contending that the 1994 Regulations were not applicable to it and it sought clarification from the SEBI. Imfa also wrote to Bombay Stock Exchange about non-applicability of clauses 40A and 4 .....

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a - 40,000 shares, I Khairulla - 10,000 shares, and F Khairulla - 10,000 shares) and specifically stated "we have acted on our own and we have not acted in concert with any other person in the above transactions nor has any person acted in concert with us". It was, however, added in that letter that "On inquiry we are informed that two of our directors, namely Ram Raheja and Harish Raheja, are also nominee directors (in some other companies) who have been holding shares of Herbert .....

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gulations immediately, failing which appropriate action would be initiated against you". 165. It is also material to note that in response to Imfa s letter to Bombay Stock Exchange dated 7-12-1995, Bombay Stock Exchange replied on 12-2-1996 that clauses 40A and 40B of the Listing Agreement were mandatory and Imfa should comply with them. What is surprising is that Imfa wrote back to stock exchange on 20-2-1996 that without prejudice to their stand, they were proceeding to comply with clause .....

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o SEBI as per the draft of Herbertson requesting an exemption under regulation 4 of Chapter III of the Takeover Regulations. SEBI did not accept any of the submissions of Imfa and ultimately on 9-10-1996 issued the first show-cause notice to Ram Raheja of Imfa under section 24 of the SEBI Act for (a) non-compliance of regulation 6 which requires disclosure to the company and Stock Exchange of aggregate holding above 5 per cent and for (b) breach of regulation 10. The show-cause notice clearly st .....

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s than 20 per cent was no ground for non-compliance. It further stated that in previous cases, the SEBI had allowed the acquirer to disinvest within a period of 6 weeks. Mr. Nariman submitted that this would be an aspect on which evidence will have to be sought from SEBI. 167. Ram Raheja replied to this notice of SEBI on 19-10-1996 that he had ceased to be a director of Imfa from 29-6-1996. M.D. Chhabria took over the management of the company. Hence, Mulla & Mulla wrote on 23-12-1996 again .....

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10-1994 to 21-11-1995 were with an intention to takeover the management of the target company in violation of regulations 6 and 10 of 1994 Regulations. This second show-cause notice was replied by Mulla & Mulla on behalf of Imfa stating that a genuine investor should not be penalised. Thereafter, Mulla & Mulla forwarded two legal opinions to SEBI in July 1997 in support of their submissions. 168. Based on the aforesaid chain of events, Mr. Nariman submitted that whatever that is stated a .....

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ready to release the advertisement. A copy of that letter was also forwarded to SEBI along with Imfa s letter dated 23-2-1996 to SEBI. Yet no announcement was made at any point of time. As far as SEBI is concerned, its stand was clear that the prior announcement was necessary and that there was breach of regulations 6 and 10 on the part of Imfa and, therefore, show-cause notices were given first to Ram Raheja and then to the managing director of Imfa. There is no official document produced on re .....

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e notices issued by SEBI (and which were subsisting) did not care to challenge them. It was for the first time in September 1998 that the defendants took out chamber summons for particulars and for the first time they filed their reply on 18-12-1998. The writ of summons had been served on the defendants within the time stipulated for that and the written statement was expected to be filed by 16-4-1998 as per rule 74 of the High Court (OS) Rules. The same has not been filed as yet. Mr. Nariman su .....

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it was in the know of filing of the suit though it has not been joined as a defendant therein. Mr. Nariman tendered a photocopy of the letter dated 4-12-1997 which showed that the papers and proceedings of Suit No. 3910 of 1997 were forwarded to SEBI by the attorneys of the plaintiffs. In that letter it has been specifically stated that "It is our clients grievance in that suit that had a public announcement been made prior to the acquisition of the said shares, our clients would have made .....

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gation before as decision which you take is likely to affect our clients legally and otherwise." 171. Mr. Nariman then drew my attention to the note of the meeting which K.R. Chhabria had with the chairman of SEBI on 31-12-1997. This noting has been produced at pp. 338-340 of compilation III-A, and it is supposed to be a copy of the internal record of SEBI. It is not stated as to how this record is obtained by the defendants though at p. 131 of his reply to the Notice of Motion No. 3922 of .....

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saying discussed , and then there is certain noting if it is a noting beginning with the word discussed , it has to be a discussion on some statement, report, communication or representation. That document is not produced. Besides, on the rear side of the document, it appears as if there were certain further statements thereon and they have not been photocopied. The tenor of the document is that according to the director of SEBI, a subsequent announcement can be made. Thereafter there appears a .....

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control under regulations 10, 11 and 12 of the Takeover Code, 1997". The letter further states that he was going ahead with the appointment of merchant banker and seeks a confirmation from SEBI that they were in agreement with the above. SEBI does not give any such confirmation at any point of time. Thereafter there are series of letters dated 16-3-1998 and 2-4-1998 again seeking this confirmation. SEBI, however, did not give any such confirmation. On the other hand, on 8-5-1998, SEBI wrote .....

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ria to recover this amount from the above companies. It also sought complete correspondence in this behalf. Mr. M.D. Chhabria replied on 28-5-1998 wherein he stated : "The position was confirmed through mutual discussion and since the erstwhile owners of Imfa, Mahameru and Shirish sold all their shareholding in these companies to me and my nominees, no further steps were considered necessary and, therefore, not taken." No papers containing the advice given by chartered accountant Kukre .....

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d in their compilation which is made by one Mr. Gupta to SEBI which is at pp. 476-486 and therefrom it is seen that p. 483 is incomplete and that there was something in between which is not made available to the Court. This is also a document which is not coming from proper custody and which is incomplete and on which reliance is sought to be placed. Mr. Nariman submitted that apart from the noting dated 31-12-1997 and Mr. Gupta s report which suggested ex post facto announcement, there was noth .....

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; Finance Ltd. (supra), Mr. M.D. Chhabria withdrew his offer of public announcement, which is what he ultimately wrote to SEBI on 22-11-1998. Thus, the unilateral offer made by him on 20-1-1998 was withdrawn by him on 22-11-1998 allegedly on the basis of non-confirmation by SEBI when SEBI had never informed him that any such offer be made or that they would confirm it. The reference to the case of Fascinating Leasing & Finance Ltd. (supra) and its effect on the stand of the defendants can be .....

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r affidavit in reply. Mr. Nariman further submitted in this context that what is relevant is that under regulation 14, such an offer has to be made in advance before acquisition and there is no provision for a subsequent announcement and assuming without conceding that any such interpretation is possible, no such announcement was ever suggested by SEBI nor has the same been given by the defendants and that there was no impediment against the same. 173. Mr. Nariman submitted that from the record .....

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n concert. Though SEBI asked for particulars of loan, these particulars were not given. Even in March and May of 1998, when specific queries were made in that behalf, none of the supporting documents of chartered accountant Kukerja were produced to SEBI. In the light of all these circumstances, SEBI was ultimately constrained to issue the show-cause notices to M.D. Chhabria and K.R. Chhabria on 8-1-1999 alleging an action in concert in breach of the Takeover Code vis-a-vis the control of Herbert .....

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dicial offices. He, however, pointed out that it were the defendants who gave the opinion in this behalf for the first time on 21-5-1996 and then on 16-7-1997 and thereafter on 21-7-1997. Mr. Nariman accepts that the plaintiffs have also obtained such an opinion in September 1997, but he maintains that it was with a view to taking the decision of filing a suit which was filed in October 1997. On coming to know that the defendants had tendered the opinions to SEBI, the plaintiffs also found thems .....

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f the notings from the files of SEBI as also their reports and giving incomplete text thereof. Mr. Nariman submitted that this shows as to how and who had better access and influence on SEBI. That apart, he maintains that the stand of SEBI with respect to public announcement was also throughout very clear. He pointed out that it was because of the complaint lodged by the plaintiffs that not merely the defendant by Mr. Vijay Mallya was also given a notice for the acquisition made by him. This can .....

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efore, submitted that what is to be noted is that there were two show-cause notices first to Ram Raheja dated 9-10-1996 and then second one to Imfa dated 31-3-1997 issued by SEBI which were both prior to the filing of the suit. The plaintiffs were not aware of the same and the notices have been placed on record by the defendants themselves. There is a third show-cause notice dated 8-1-1999 which is issued subsequent to the filing of the suit. Mr. Nariman submitted that the defendants have not ca .....

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e Act, it is the Reserve Bank of India that is constituted and entrusted with the task of regulating and conserving foreign exchange. If one may use such an expression, it is the custodian-general of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission may or may not be granted under section 29(1) of the Act. The Act makes it its exclusive privilege and fu .....

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ion, on the ground that it was mala fide or that there was no application of the mind or that it was opposed to the national interest as contemplated by the Act, being in contravention of the provisions of the Act and the rules, orders and directions issued under the Act. Once permission is granted by the Reserve Bank of India, ordinarily it is not open to any one to go behind the permission and seek to question it. . . ." (p. 1413) Similar is the observations of the Supreme Court in the ca .....

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s done, the order remains enforceable. The duty is clearly on the tenant himself to raise the plea of invalidity and unless the order is declared invalid at his instance, its enforceability cannot be doubted. 23. In Wade s Administrative Law, 6th edn. At pp. 351-353, there is an illuminating discussion of this topic. It has been pointed out that void is meaningless in an absolute sense; and unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quash .....

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m service. May be illegally. The order of dismissal has clearly infringed their right to continue in the service and indeed they were precluded from attending the office from the date of their dismissal. They have not been paid their salary from that date. They came forward to the court with a grievance that their dismissal from service was no dismissal in law. According to them the order of dismissal was illegal, inoperative and not binding on them. They wanted the court to declare that their d .....

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of affairs and does not quash so as to produce a new state of affairs. 8. But nonetheless the impugned dismissal order has at least a de facto operation unless and until it is declared to be void or nullity by a competent body or court. In Smith v. East Elloe Rural District Council All ER 871, Lord Radcliffe observed: An order, even if not made in good faith, is still an act capable of legal consequences. It bears no brand of invalidity on its forehead. Unless the necessary proceedings are take .....

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rt will invalidate an order only if the right remedy is sought by the right person in the right proceedings and circumstances. The order may be hypothetically a nullity, but the court may refuse to quash it because of the plaintiff s lack of standing, because he does not deserve a discretionary remedy, because he has waived his rights, or for some to her legal reasons. In any such case the void order remains effective and is, in reality, valid. It follows that an order may be void for one purpos .....

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ashtra Amendment, the Court had granted ad interim order, which was within the power of the Court under sub-rule (2) thereof. It was alleged that ad interim order was valid and thereby there was contempt. The Supreme Court referred to the judgment in the case of Shiv Chander Kapoor (supra) and held : "The interim orders so passed are orders within jurisdiction when passed and effective till the court decides that it has no jurisdiction to entertain the suit." 178. Mr. Nariman, therefor .....

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ate authority as also observed by a Constitution Bench in LIC of India s case (supra). This was particularly so when the matter was at the stage of show-cause notice, and the defendants were expected to file their reply. When the plaintiffs, who had no remedy or access in the CLB, have filed a suit for rectification of the register and to seek an injunction in the meanwhile, the defendants cannot be heard to point out that there was no basis to the notices issued by SEBI. Appropriate protection .....

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sent suit may become redundant. He, however, submitted that prayer (b), which was for rectification of register, will always survive. Whether SEBI can do that or not, the plaintiffs can certainly seek that relief in this Court and as has been held right from T.A.K. Mohideen Pichai Taraganar s case (supra) that in common law, right of shareholders based in their contract with the company is not abridged. He, therefore, submitted that under the judgment of the Supreme Court in Manalal Khetan s cas .....

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ht was necessary. As far as developments subsequent to the filing of the suit is concerned, it is a moot question as to what extent it can be considered by the time the application for interim relief comes to be decided or by the time the suit comes to be heard and decided. There are judgments to canvass either of the proposition that they should be considered or they may not be considered. Mr. Nariman submitted that in either case, as far as the present proceedings are concerned, there are two .....

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contract, so too the other party to the void contract may ask him to restore the advantage received by him. It is possible that SEBI may make necessary order in their protection which is probably within its domain. However, inasmuch as a number of possibilities may come up subsequently, the plaintiffs were prepared to deposit the entire price of the shares in the Court so that in the event of any disinvestment was directed or any harm was likely to be caused to the transferors who were not befo .....

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h was sought to be injuncted. The defendants will in the meanwhile continue to receive the dividends and can participate in all other decisions making except when it comes to taking over of the management. Conduct of plaintiffs on allegation of collusion 181. With respect to the allegation of the defendants that the plaintiffs were the friends of Vijay Mallya, Mr. Nariman submitted that the plaintiffs never disputing that. In fact, the plaintiffs admitted that in para 2 of the plaint. However, h .....

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submitted that whatever documents that the plaintiffs had relied upon were official papers or statutory documents which they have obtained from the company and there was nothing improper in that. In fact, it was the defendants who were relying upon the confidential papers of SEBI and which were illegally and, in any case, improperly procured. Mr. Nariman submitted that even if the plaintiffs are close to Vijay Mallya, they cannot be prevented from raising the issue of illegality. 182. On the oth .....

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control and he remains the chairman. It is the defendants who are now subsequently having second thoughts. 183. On p. 17 of the reply in ground (h), there was a reference to the assessment order against the company dated 31-3-1997 and to the allegations of siphoning of funds. In this connection, Mr. Nariman referred to K.R. Chhabria s letter dated 13-6-1997 which is at page 132 of compilation I, which is supposed to allege siphoning of funds by Balaji group of companies. What is material to note .....

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did not proceed further in the matter because of the assurance given by Mallya and, therefore, he did not attend the AGM. Mr. Nariman submitted that this reason is unconvincing because in the letter dated 31-12-1997 (at p. 245), Mr. Mallya had clearly stated that the truce between the parties was over and they were at war. In spite of that, in the reply of K.R. Chhabria he has stated that the discussions were without prejudice. Mr. Nariman asked as to why they should be without prejudice and why .....

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s, in fact there was neither siphoning nor over-cutting in Andhra Pradesh. 184. Then, Mr. Nariman referred me to the assessment order wherein there are certain observations against the plaintiffs. Mr. Nariman submitted that the order can be read against Herbertson, but the observations cannot be read against the plaintiffs because they were not heard when those observations were made. He referred to a Division Bench judgment of the Gujarat High Court (per Ahmadi, J, as he then was in that court) .....

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ies 186. Mr. Nariman submitted that the dispute was between the plaintiffs and the persons or the companies which had illegally acquired share in violation of law. The transferors of shares were not in picture. If necessary, the transferees will suffer the penal consequences for breach of regulation 24(1) of the SEBI Regulations. As far as the transferors are concerned, they will not suffer any penal consequences and as far as civil consequences are concerned, assuming without conceding that the .....

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III. He relied upon the following passage from Chitty on Contract, 1983 edn. at p. 623 which reads as follows : "Statute : one party only affected. Statutes which prohibit certain contracts often impliedly recognise, for example by punishing only one of the parties, that the parties are not equally at fault, and, therefore, on their true construction only one of the parties to the contract is prevented from suing upon it. Accordingly, when "the policy of the Act in question is to prot .....

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e aforesaid passage from Chitty on Contract the case of Anderson v. Daniel [1924] 1 KB 138 has been referred to and relied upon. The said judgment has been followed by a Division Bench of this court in Sundrabai Sitaram Narangikar v. Manohar Dhondu Khandalgaonkar [1932] 35 BLR 404. 187. Mr. Nariman then submitted that the disputed contract in the present case had two parts ; the first part was buying the shares and the second part was using them to takeover the company. The second part of the co .....

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ra) by the Supreme Court where also the Reserve Bank directions were not meant to be followed for others. In that case, only one party was pari delicto as in this case. In Sundarabai Sitaram Narangikar s case (supra), there was completed transaction. In our case, the transaction is not completed as yet. The transaction in our case will have to be split into two parts and inasmuch as the second part is not yet completed, the proposition in Mannalal Khetan s case (supra) will still hold the field. .....

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lawful purpose knowing it to be so, or in such circumstances that knowledge of illegality or unlawfulness can as a finding of fact be imputed to him, the agreement under which the payment is made cannot on his part be said to be discovered to be void. . . ." (p.1894) He also referred to the observations from Mulla s Contract 11th edn., on section 23 to the similar effect. He then relied upon the judgment of the Supreme Court in Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1989] Supp. 2 SCC 65 .....

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k (supra), wherein the court held that the CLB was performing the functions that were performed by the courts of civil judicature. The Board may as well make interim orders and those orders were appealable. The court observed that "It cannot be said to be anything other than a court". (iii) Alternatively, in the event of there being any violation of the SEBI Regulations, the remedy was to approach the SEBI for taking appropriate measures. The direction of SEBI, however, cannot be that .....

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a was that the plaintiffs remedy was to go to the SEBI and SEBI had sufficient power. In this behalf, he drew my attention to an unreported judgment of a Division Bench of this court in Writ Petition (Lodging) No. 2125 of 1998 decided on 6/7-11-1998 concern-ing the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995. Mr. Dada drew my attention to the observations made in para 8 .....

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ations were under consideration and SEBI had issued certain directions and those directions were left undisturbed by the appellate authority. In para 13, the court had observed that SEBI had powers to pass interim order before and during the inquiry or investigation to effectuate the purpose of the SEBI Act and the Regulations. The court observed that both under sections 11 and 11B, the duties cast on the Board are to protect the interest of the investors in securities and to promote and regulat .....

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nt of a Division Bench of Gujarat High Court in the case of Alka Synthetics [LPA No. 236 of 1997 dated 29-12-1998] where also the court held that for any breach of the SEBI Regulations, appropriate orders can be passed by SEBI. 191. Mr. Dada then pointed out that the registration of shares to the defendants was being challenged on the basis of the agreement between Mallyas and Chhabrias. He submitted that such agreement is void and unenforceable. He relied upon the judgment of the Supreme Court .....

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e, not binding either on the company or on the shareholders. The vendee of the shares cannot be denied the registration of the shares purchased by him on a ground other than that stated in the articles." Mr. Dada submitted that any such agreement cannot be a ground for denial of transferability, but in any case the party concerned was either expected to go to SEBI or to CLB and not to file the civil suit. 192. Mr. Dada then also drew my attention to the fact that section 11B of the SEBI Act .....

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se rights included free transferability of the shares and the voting rights. Mr. Dada drew my attention to regulation 39 and submitted that it implied that the title in the shares is not to be disturbed by any such order. 194. Mr. Dada also drew my attention to regulation 33(2)(a) which provides for investigation by SEBI into illegal takeovers. Besides, he pointed out that if there is any illegality in the purchase in violation of the regulations, that can be cured by directing a competitive bid .....

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971, the Division Bench observed that "the illegality involved in this process is not absolute, or incurable is also evident from sub-section (5) of section 25". He pressed for a similar approach assuming that there is any breach in not giving a public announcement. Similarly, he referred to Punjab Beverages (P.) Ltd. s case (supra), wherein the Supreme Court held in para 7 thereof that for finding out whether an order of dismissal in violation of section 33(2)(b) of the Act, the whole .....

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s were from September to December 1998. He, therefore, submitted that these acquisitions would be covered under 1997 Regulations and not 1994 Regulations, and under regulation 11 of the 1997 Regulations, those who were going above 10 per cent were permitted to go up upto 2 per cent. He, therefore, submitted that even their purchasers cannot be said to be invalid. 196. The above submission of Mr. Dada are noted amongst other reasons also for the different emphasis that he has laid on different as .....

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because on that depends their proportionate return on their shares. That right has not been taken away by this new provision which is in a way a substitute to the remedy which was available earlier under section 155. Alteration of the nature of the remedy cannot mean taking away the substantive right which the plaintiffs had. Besides, as also observed earlier, one has to be always slow in inferring any such ouster unless that is so specifically mentioned. The judgment in Canara Bank s case (supr .....

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matters. It is in this context that the court observed: "Now, under section 111 of the Companies Act as amended with effect from 31st May, 1991, the CLB performs the functions that were, theretofore, performed by courts of civil judicature under section 155. It is empowered to make orders directing rectification of the company register, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to ha .....

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onstituted under a statute. It is difficult to see how it can be said to be anything other than a court, particularly for the purposes of section 9A of the Special Court Act." (p. 95) 197. As far as Mr. Dada s submission that the plaintiffs ought to go to SEBI is concerned, it has its own limitations. Presently, it is only the investigation by SEBI which is going on in view of the show-cause notices issued by SEBI. During the course of that investigation, SEBI may come to its own conclusion .....

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isputed shares are tainted for being clandestine and in breach of these regulations, the plaintiffs cannot be prevented to approach the civil court to seek an injunction restraining the votes based on these tainted shares. The submission of Mr. Dada that the civil court is not expected to do what is within the jurisdiction of SEBI does have some force. The court will have to take that care while deciding the matter finally and will have to remain conscious as to what direction it ought to give s .....

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oot question is with respect to these disputed shares which are already acquired in breach of the regulations. None of the counsel appearing for defendant Nos. 1 to 11 has accepted that these shares can be put into the hotch-potch for post facto announcement. This is because their submission is that they are already validly acquired and it is the purchases of these shares which are sought to be invalidated through the first prayer in the suit seeking a declaration that those purchases are void. .....

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and relied upon a number of orders passed by SEBI in different disputes. Thus, in the case of Macmillan India Ltd., the acquirer H.M. Publishers Holding Ltd. was directed by SEBI to make post facto offer while making it clear that this does not mean condonation of the violation by the acquirer. But the case of Hilton Rubbers Ltd. was not a case wherein SEBI directed to make a public offer after crossing the threshold limits under the 1997 Regulations. Similarly in the case of Saurashtra Cement L .....

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Vishnu Cements Ltd. also it was not a case of the acquirer acquiring shares in excess of the limit stipulated. In Sibar Finance Ltd., the promoters already held 40 per cent shares and one of the directors picked up 9.54 per cent shares from open market. While approving company s rights issue, SEBI directed the promoters to make post facto public offer for 20 per cent equity capital. None of these cases are cases of direction of disinvestment of the disputed shares which is required to be noted .....

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er of the company had a right to vote. Now, however, after the introduction of section 111A(5) normally a transferee could have a right to vote. However, if the transfer is challenged and appropriate case of breach of regulations is made out, such right can be curtailed by the civil court. Inspite of the approach which is now emphasised in the amended section 111A, when the transfers are under challenge and particularly the effect thereof on takeovers is involved, what applies to the disputed re .....

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he private rights available to the plaintiffs either in common law or statute; (b)the relief claimed must have nexus with such a private right or rights; (c)the strict rules of pleadings, evidence, burden of proof, etc., applicable to civil suits would apply to such a suit. (2) A shareholder of a company has a private right, inter alia, to receive dividends, to participate in the management by voting at general meetings (the right to vote being a statutory right available to all members under se .....

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such rights to offer a competitive bid. The prayers in the plaint are to- (i)declare the purchase to be void, and (ii)consequently to either direct a rectification (where the company has registered the transfer) or to reaffirm a refusal of registration (where the company has declined to register of the transfer). There is no relief claimed which would result in the plaintiffs being aided or facilitated in the exercise of their right to a competitive bid. (b)A competitive bid is also a bid to ta .....

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irous of exercising any such right is clearly an afterthought - the conduct of the plaintiffs shows that they took all steps necessary to thwart a public offer, and at no stage have they ever stated in their correspondence with the SEBI that they were anxious to make a competitive bid to takeover the management of the company. (e)The right to a competitive bid is founded not in common law but based upon the provisions of the Takeover Code. It is not an indefeasible right, e.g., SEBI may prohibit .....

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situations which may arise on a purchase of securities in violation of the provisions of the Code. It is submitted that : (a)No civil suit would lie to seek any direction in relation to a matter upon which the SEBI has to take a decision - [1998] 4 SCC 409 relied. (b)The SEBI has to decide the matter keeping in view the interest of shareholders and the interest of the securities market and public interest. A suit for private rights particularly one seeking reliefs inconsistent with the powers of .....

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consequential relief by way of rectification of the register of members. A declaration that the acquisition of shares is void would undoubtedly interfere with the exercise of discretion by the SEBI under regulation 39. (6) An application for permanent injunction under section 38 of the Specific Relief Act can be granted to protect or preserve the rights of the plaintiffs. Assuming without conceding that the plaintiffs have a right to competitive bid, the exercise of voting rights do not in any .....

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f equity in a suit for permanent injunction would not exercise its powers particularly when the relief sought is something not expressly dealt with by the statute and, therefore, something which is not contemplated by the statute. (8) The prayers in the suit are really in one sense interlocutory in nature. The plaintiffs pray for declaration that the transfers to the defendants are void and that the register of members be rectified wherever such transfers have been registered. It does not furthe .....

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mpany Law are well-settled : (a)Shares are movable property and transferable as such like any other movable property - V.B. Rangaraj s case (supra). (b)A transfer of title between the transferor and transferee is effective from the date of the transfer. Further, such transfer is effective against the company from the date of registration. However, insofar as the transferors and transferees are concerned, the transaction is complete at the time of transfer - LIC of India s case (supra) para 84. ( .....

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f shares even in contravention of the Code would not be void inter alia for the following reasons : (a)The consequence of a law which operates only on the conduct of a party and not upon the transaction or the property, would not be to invalidate the transaction between a delinquent party and an innocent party. Any infracton of such a law would, however, render the delinquent party to action. An acquisition of shares by any person would not affect the innocent transferor to protect whose rights, .....

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e consequence suggested would be inconsistent with the powers of the SEBI under regulation 39. The SEBI surely cannot direct a delinquent acquirer to sell shares if his purchase in the first instance is itself void ab initio. A fortiori, the SEBI cannot prohibit a delinquent acquirer from selling shares if initial purchase is itself void ab initio. (11) In order to establish a prima facie case which would justify the grant of an interim injunction against exercise of voting rights, the plaintiff .....

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heir right to hold these shares and exercising all statutory rights available to the holders of such shares. Besides, it is not necessary that the SEBI make an order directing a disinvestment of the shares - the SEBI may equally direct a public offer as it had proposed earlier. Therefore, there is no legal basis for seeking an injunction of the voting rights at present. (13) There are two submissions of Mr. Dada which are required to be noted along with these submissions. Firstly that any person .....

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1. With respect to these submissions of Mr. Salve and Mr. Dada, having noted what are the rights of a shareholder of a company including the rights to vote under section 87, it has got to be noted that a shareholder does have an interest in having the true and correct picture in company s register. That is his right flowing from membership of the company, the right based in contract and in common law as held from time to time. The remedy for that has also been held to be one by filing suit in di .....

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ss of the company s register by filing a suit where he is agitating the erroneous entries obtained on the basis of clandestine purchases. Once it is held that a shareholder has a right in having the purity and the correctness of the register, it flows that the manner in which the illegal purchases and entries are made could always be a ground to press into service. As far as the grievance of Mr. Salve with respect to competitive bid is concerned, it is no doubt true that the plaintiffs do not wa .....

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nt Nos. 1 to 11, the plaintiffs would like to intervene and give a competitive bid. As far as the SEBI Takeover Code being a complete Code, as stated earlier, the plaintiffs have a right to elect. They may approach the SEBI or they may in a suit like the present one agitate their grievances. It is possible that some of the consequential directions flowing from prayer (a), namely, the declaration of the purchases of the shares being void, could be within the realm of SEBI and hence while passing .....

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on of register. It cannot be said that this is a suit for enforcement of the law generally. The plaintiffs are asserting their rights as shareholders of the company and it cannot be said that the suit is essentially in the nature of an interlocutory suit only. Prayer (b) is a substantive prayer which is otherwise maintainable in a suit at the final hearing and connected interim prayers can be sought for seeking the injunction. All that the plaintiffs have to point out is that the concerned share .....

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nt of section 10 of 1994 Regulations without making a public announcement. They have made out a more than prima facie case on facts as well as in law. 202. With respect to the two submissions of Mr. Dada that the present matter is not a public interest litigation and it is a private one, there is no difficulty in accepting that. At the same time, the points which are of public concern can certainly be pressed into service in a litigation which is concerning a public limited company. Mr. Salve ha .....

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d strictly. For quite sometime, the Supreme Court has told us earlier in Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla AIR 1976 SC 565 and recently in Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 23 CLA 1731 that we cannot ignore the conditions of Indian society. In Kilpest (P.) Ltd. s case (supra), the Supreme Court noted the observations in Hind Overseas (P.) Ltd. s case (supra) and observed as follows : "The court observed that although the Companies Act was modelled on the Engl .....

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what different treatment be adopted. The courts would have to adjust and adopt, limit or extend the principles derived from English decisions, entitled as they were to great respect suiting the conditions of Indian society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholders should not be readily sacrificed at the alter of squabbles of directors for power to manage the company." [p. 176] The Supreme Court in Workm .....

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he intentions behind the regulations and it is for the civil court to make the authoritative pronouncement with respect to such provisions as held by the Supreme Court in cases cited above. 204. Having stated this, out of the various prayers made by the plaintiffs, the interim prayer with respect to the debentures purchased in December 1993 is something which cannot be entertained. 205. Mr. R A Dada appears for defendant Nos. 2 and 6 to 10, the allegation against which companies appears in paras .....

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ebentures prior to 1994 were fully convertible debentures and in that connection he referred to section 2(12) and section 81(1)(iii) of the Companies Act. He submitted that if the debentures were fully convertible when purchased, the allegation relates back to 1993 though the conversion has been made in 1994. In that view of the matter, this conversion will also not be hit by 1994 Regulations. Mr. Dada, therefore, submitted that regulations 9 and 10 will not only apply to 3,75,000 FCDs bought on .....

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ched to a point of time prior to the 1994 Regulations coming into force. In the circumstances, in any case, the prayer in the two motions with respect to the convertible debentures purchased in December 1993 is difficult to sustain. 207. In the facts and circumstances of the case and in the light of the narration of issues and discussion thereon as mentioned above on the points raised before me, my findings are as follows : (a)It is difficult to accept the submission of Mr. Nariman that merely b .....

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f 75,000 fully convertible debentures on 14-12-1993 are concerned, these purchases are prior to the regulations coming into force and hence as far as the voting rights which flow therefrom and against which an injunction is sought in terms of the submission in para 18(i) of the plaint is concerned, there will not be any such injunction. (c)As far as 10,39,091 equity shares purchased by defendant No. 3 and 4,72,250 equity shares purchased by defendant No. 4 are concerned, they are referred to in .....

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referred to in paras 18(ii) and (iii) of the plaint. 208. Then comes the question as to how the interim order ought to be worded because there arises the question of balance of convenience and appropriate orders. The defendants have all throughout submitted and pointed out that but for any interference on behalf of the plaintiffs, they would almost be in a controlling situation if there is no injunction as sought by the plaintiffs. On the other hand, it is the case of the plaintiffs that if the .....

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m no injunction as sought for is granted, the affairs of defendant No. 12-company will suffer further. As against that, Mr. Salve, the learned counsel appearing for defendant No. 1, submitted that the plaintiffs will continue to get their dividend in the meanwhile and if they finally succeed, the management will again go back to the group which the plaintiffs are espousing to support. Mr. Salve submitted that the plaintiffs were essentially the distributors of defendant No. 12 and their business .....

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a right to make a competitive bid. There was no reason to freeze the votes in the meanwhile and the plaintiffs can certainly give their competitive bid if they want to give it in the meanwhile. Mr. Salve submitted that balance of convenience has to be judged not with reference to the right of present management to continue in office, but with respect to private rights asserted by the plaintiffs. Mr. Salve, therefore, submitted that any interim order to be passed should provide for adequate repre .....

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counsel appearing for defendant Nos. 2 and 6 to 10, referred me to the judgment of Dhanuka, J., dated 15-2-1995 in Ramesh Narang v. Rama Narang [Notice of Motion No. 2646 of 1994 in Suit No. 3535 of 1994, dated 15-2-1995] wherein the learned Judge had appointed a retired Judge of this Court as the administrator of the company concerned. Mr. Nariman, on the other hand, pointed out that Mr. Mallya, the chairman of defendant No. 12-company, is very much the 2nd defendant in the second suit and no .....

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course of business) except with the approval of the Board as included in the agenda and that no items other than the agenda items shall be discussed and decided in the Board meeting. He further pointed out that the Central Government had appointed Mr. Mallya as the Executive Chairman of this company by an order dated 8-12-1998 for a period of 5 years though that order is under challenge in a petition filed by defendant No. 11 herein in the Delhi High Court being Writ Petition No. 629 of 1999. M .....

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No. 12, expressed his agreement to this suggestion. Mr. Nariman also offered to deposit an amount of ₹ 15,22,65,422.50 so as to cover the financial losses, if any, in case any order of disinvestment comes to be passed at a later point of time whereby the defendant Nos. 1 to 11 would receive such amounts less than what they have put in purchasing the disputed shares. The defendants of course are not interested in any such monetary protection inasmuch as their principal submission is that on .....

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ve the jurisdiction to interpret the provisions of the statute and the SEBI Regulations so as to lay down the correct interpretation and the frontiers of jurisdiction of the statutory authorities concerned. This is coupled with the prima facie view that this exercise by this Court should not be extended beyond that inasmuch as what is within the jurisdiction of SEBI will have to be done by SEBI alone. Now, if at the end of the trial the disputed acquisition are held to be bad, the Court can give .....

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c announcement which will, however, include the disputed shares also. 211. SEBI is already looking into the notice which it has issued. It is possible that SEBI may in exercise of its own powers in the meanwhile and for the purposes of exercising those powers interpret the regulations concerned to the extent it becomes necessary for discharging its functions and for deciding the notices. As stated earlier in this order, the function to interpret the parameters of jurisdiction will, however, in s .....

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r passed above. 213. In the circumstances, having held that the plaintiffs have made out a prima facie case with respect to the disputed acquisitions in paras 18(ii) and (iii) and having heard the counsel on both sides with respect to appropriate order to be passed, in my view, it would be proper that defendant Nos. 1 to 11 and their power of attorney and proxy holders ought to be restrained and they are hereby directed and restrained from exercising voting rights, directly or indirectly, insofa .....

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from the date of meeting and in no case any decision in the meeting will be implemented for a period of 4 days from the date of the meeting. This subject to the earlier embargo of 8 weeks. Similarly, the statement of Mr. Seervai, the learned advocate for defendant No. 12, is recorded that no general meeting will be held except with prior application to this Court until SEBI decides the notices before it and/or until further orders. 214. As a consequence of the above order, a part of those votes .....

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has already been appointed. The scrutinisers will then make his report to the chairman who will declare the result on that basis. 215. As far as the votes of the shareholders who are covered under paras 18(ii) and (iii ) of the plaint are concerned, their votes will be excluded while arriving at the result. 216. Notices of Motion Nos. 3120 of 1997 and 3932 of 1998 are, therefore, made absolute in part on terms as above. Parties will bear their own costs of these proceedings. 217. As far as Notic .....

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