TMI Blog2009 (12) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... en able to make payment of its various dues, such as, electricity dues, creditors' dues, statutory levies as well as demands from the financial institutions. The electricity supply to the said tea estate stands disconnected since the year 2007 and the appellant's-bank has also declared the appellant-company as a non-performing asset and has accordingly initiated proceedings against the appellant-company in the Debts Recovery Tribunal, Guwahati. 2. On the ground that the financial condition of the appellant-company did not make it feasible for the appellant-company to run its business, an extraordinary general meeting of the shareholders of the appellant-company was convened on December 15, 2006. In this extraordinary general meeting, a resolution was adopted that the appellant's tea estate along with its assets and liabilities would be sold so that the dues of the appellant-company could be liquidated. The resolution also empowered the board of directors to negotiate with the highest bidder and sell the shares of the appellant-company without calling for any general meeting of the appellant-company. By another extraordinary general meeting held on March 19, 2007, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-company along with all its assets and liabilities. On coming to know of the fact that a purchaser had been found, who was willing to purchase the shares, the plaintiff, vide his communication dated October 26, 2007, informed the managing director that the plaintiff proposed to retain Radhabari Tea Estate and also the appellant-company by having all shares of the company at the same price, which had been offered by the highest bidder, who is an outsider and not a member of the family, inasmuch as he (the plaintiff), being grandson of the person, who had been involved in bringing into existence the appellant- company, intended to retain the company within the family. By his said communication dated October 26, 2007, the plaintiff, thus, sought to exercise his pre-emptive or preferential right of purchase of the shares of the other shareholders and requested the managing director of the appellant-company to place the plaintiff's proposal to the board of directors for final approval. 7. As the plaintiff expressed his desire to purchase the share of the appellant-company, one of the directors ( i.e. , proforma respondent No. 3 in the present appeal, who was defendant No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff-respondent, in his said communication, also made it clear that the plaintiff was not a bidder for the shares of the appellant-company, but was only putting his pre-emptive right of purchase of shares at the price, which might be offered by the highest confirmed bidder from outside the family. 9. The appellants allege that it was due to delaying tactics adopted by the plaintiff-respondent that the highest bidder lost interest and became noncommittal. The appellant-company also alleges that the plaintiff-respondent did not really have any intention to purchase the shares ; otherwise, he could have purchased the shares at the rate, which had been offered by the person, who had, as mentioned above, came forward to buy the shares along with all the assets and liabilities of the appellant-company. The plaintiff-respondent, however, denies that it was due to his fault that the highest bidder withdrew yet the fact remains that the plaintiff-respondent was, admittedly, informed about the highest bid, but the plaintiff-respondent had not, promptly and positively, responded to the highest bid, which was available from the bidder, who had come forward to buy the shares. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, title Suit No. 1 of 2008, seeking various declarations and also permanent injunction. In his suit, the plaintiff-respondent impleaded the appellant-company and four of its directors as parties. The share holders, who are owners of the shares and who are persons, who have the authority to sell or transfer their respective shares in terms of the articles of association of the appellant-company, have not been made parties nor any reliefs has been sought for against the shareholders. The reliefs, which the plaintiff-respondent sought for, in the suit, read as under : ( a )a decree declaring that the plaintiff has the preferential right and/or right of pre-emption to purchase the shares of defendant No. 1 from the selling members ; ( b )a decree declaring that the defendants have no right to sell or transfer the shares of defendant No. 1 to any outside third party depriving a willing and desirous shareholder from purchasing the shares from selling members ; ( c )a decree declaring that the communication/letter dated February 9, 2008, with annexures therewith, issued by the then managing director of defendant No. 1 addressed to the shareholders, including the plaintiff, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court passed an order on May 14, 2009, allowing the injunction application, filed by the plaintiff-respondent, thereby restraining the appellants herein, their agents, attorneys, assigns and employees from selling, transferring and giving possession of the shares of the appellant-company to any outsider and/or from leasing out Radhabari Tes Estate and delivering possession thereof to any outsider/third party pursuant to any sale, transfer or lease. 14. Aggrieved by the order of injunction, so passed, the appellants are before this court. 15. Before I deal with this appeal, on merit, some events, which the appellants have brought on record, as having been taken place subsequent to passing of the impugned order dated May 14, 2009, may be taken note of. 16. Following the impugned order dated May 14, 2009, the proposed buyer of the shares of the appellant-company became disinterested. In the mean while, 37 (thirty seven) shareholders of the appellant-company informed the managing director that they wanted to sell their shares at a price not less than Rs. 800 per share and requested the managing director to find suitable shareholder, who was willing to buy their shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode of Civil Procedure has been preferred. The appellants have also filed an application under Order XLI, rule 5 read with section 151 of the Code of Civil Procedure seeking stay of the impugned order dated May 14, 2009, aforementioned. 18. I have heard Dr. A. K. Saraf, learned senior counsel, appearing on behalf of the appellants and Mr. S. Ali, learned counsel, appearing for the plaintiff-respondent. Submissions : 19. Appearing on behalf of the appellants, Dr. A. K. Saraf, learned senior counsel, submits that in the case at hand, the shares are owned by the shareholders and in their absence, no effective decree for specific performance of contract to sell the shares in preference to an outsider can be passed in the suit and, hence, the shareholders, being necessary parties, the suit was prima facie not maintainable in law in their absence. Injunction could not have, according to Dr. Saraf, been granted in the present case, when the suit was prima facie not maintainable due to the plaintiff's omission to implead the shareholders as parties. 20. Dr. Saraf contends that according to the plaintiff-respondent, the articles of association, in the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , sub-clause ( i ) of clause 7, the board of directors has the power to recognise transfer of shares to an outsider if such transfer is in fulfilment of any object considered as charitable or beneficial or for public purpose or warranted under the terms of a trust deed created by the share holder with any such object. In such circumstances, contends Dr. Saraf, a shareholder's pre-emptive right, in the present case, cannot be said to be absolute and unqualified. This vital aspect, contends Dr. Saraf, has been completely lost sight of by the learned trial court. When a trial court, submits Dr. Saraf, misconstrues a document or a provision of a deed, while reaching a decision, such a decision can be interfered with by the appellate court. In support of this submission, Dr. Saraf places reliance on Ramdev Food Products P. Ltd. v. Arvindbhai Rambhai Patel reported in [2006] 8 SCC 726. 23. Dr. Saraf submits that the decision to sell shares to an outsider, who would agree to take all the assets and liabilities of the company, was beneficial and in public interest and this decision was a decision of the company, as a whole, inasmuch as the company had run into losses. Dr. Sara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate at which an outsider is willing to purchase, but shall also deposit the value of the share within a period of 14 days from the date, when the decision of the shareholder to sell the shares to an outsider becomes known to the shareholder, who is interested in making purchase of such a share. In the present case, points out Dr. Saraf, it is the admitted case of the plaintiff that the plaintiff had known all along about the resolutions adopted in the extraordinary general meeting held on December 15, 2006 and March 19, 2007, to which he (the plaintiff) was a party and he (plaintiff), having also come to know that the board of directors had found a purchaser, who was willing to purchase the appellant-company along with its assets and liabilities, sent a communication dated October 26, 2007, expressing his willingness to purchase the shares at the rate at which the shares were offered to be purchased by the outsider. Thus, points out Dr. Saraf, while the plaintiff, having known on October 26, 2007, that a purchaser for shares had already been found, offered to buy the shares, but he did not deposit the requisite money within the prescribed period of 14 days. In such circumstances to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so on all the members and office bearers of the corporation, whose personal action it seeks to restrain. However, contends Dr. Saraf, the learned trial court has not noticed the fact as to whether an order of injunction can be passed without bringing on record the necessary parties, and, in the case at hand, when the shareholders are owners of the shares, their decision to sell the shares cannot be disturbed without impleading them as necessary parties. The observation, made by the learned trial court, in its order granting injunction that the provisions of section 397 of the Companies Act are not attracted, is not supported by any reasoning. Such an order, according to Dr. Saraf, has no legal sanction and needs to be interfered within the interest of justice. 29. In the present case, contends Dr. Saraf, no shareholder has an absolute or unqualified right to demand that the shares must be sold to him inasmuch as the board of directors has the discretion to allow transfer of shares in terms of the articles of association and when the provisions of the articles of association are not under challenge, the discretion of the board of directors, to allow transfer of shares to an out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is in favour of granting injunction and irreparable loss would ensue if injunction is refused. Thus, according to Mr. Ali, all the three golden principles, in respect of granting of injunction, having been well satisfied in the present case, this court, as an appellate court, may not, in the facts and circumstances of the present case, interfere with the impugned order. 32. In support of his submission that the appellate court's power, against the exercise of discretion of granting injunction by the trial court, is circum scribed and that an appellate court must be slow in interfering with the discretionary exercise of jurisdiction of granting injunction, Mr. Ali places reliance on Wander Ltd. v. Antox India P. Ltd. reported in [1990] (Supp) SCC 727 and Smt. Kausalya Barua v. Brahmaputra Construction Ltd. reported in [2005] 2 GLT 190 ; AIR 2005 Gauhati 149. 33. Mr. Ali points out that the articles of association of the present company contain terms and conditions of a contract between the company and the shareholders and also the shareholders inter se. In such circumstances, the terms and conditions, embodied in the articles of association, as regards trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ints out Dr. Saraf, that when a trial court takes a decision ignoring a relevant fact or a material aspect of law, non-interference would not only be unjustified, but would amount to refusal to exercise jurisdiction by the appellate court. In the present case, submits Dr. Saraf, the learned trial court has not considered at all if the shareholders were necessary parties. If the shareholders were necessary parties in the suit, in their absence the suit was not maintainable and when the suit is not maintainable, even any interlocutory order of injunction cannot, according to Dr. Saraf, be passed. Support for this submission is sought to be derived by Dr. Saraf from the cases of Shiv Kumar Chadha v. Municipal Corporation of Delhi reported in [1993] 3 SCC 161 and Pranab Kumar Banerjee v. Momin Ali alias Mukib Ali reported in [2006] 2 GLR 26. 37. Dr. Saraf points out that the learned trial court, in the present case, has also brushed aside the fact that the plaintiff has specifically alleged, in his pleadings, that the board of directors has mismanaged the affairs of the company and has caused loss to the company. According to Dr. Saraf, these allegations are tantamount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, which may be offered by an outsider. The plaintiff's allegation is that the process initiated by the appellant-company to sell the shares of the appellant-company is in violation of the articles of association, though the articles of association are binding upon the appellant-company, its directors and all the shareholders. In support of his case, the plaintiff relies on clauses 7( b ), 7( c ) and 7( d ) of the articles of association, which the plaintiff contends confer a pre-emptive right on the plaintiff, as a shareholder, to purchase the shares of the appellant-company. In other words, according to the plaintiff, he, in terms of the articles of association, has, in the facts and attending circumstances of the present case, preferential right of purchase of shares. In the facts and circumstances of the present case, therefore, whether the learned trial court have, legally and justifiably, granted injunction in the manner, as indicated above, by its order dated May 14, 2009 ? This is the moot question, which this appeal has raised for determination. 40. The answer to the moot question framed above needs to be determined on the basis of the answers to some other rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting injunction and that there would be irreparable loss if injunction is not granted are the principles, which have been consistently followed by the courts so that some judicially determinable parameters remain available for the purpose of deciding if discretionary exercise of power of granting injunction has or has not been justifiably granted. The three golden principles, which govern the grant of injunction, are nothing, but conditions, which are required to be satisfied by a party in order to enable it to obtain an interlocutory order of injunction. 42. Consequently, in such appeals, while the appellate court will not, ordinarily, substitute its own discretion in place of that of the trial court, yet where discretion is shown to have been exercised arbitrarily, capriciously or by ignoring settled principles of law regulating grant or refusal of interlocutory injunction, the appellate court is bound to interfere, for, non-interference with such exercise of powers by the trial court will, if allowed to remain good on record, cause serious miscarriage of justice. It is also important to bear in mind that the appellate court may not be, normally, justified in interfering wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut as has been observed by Viscount Simon in Charles Osenton and Co. v. fhanaton [1942] AC 130 ... the law as to the reversal by a court of appeal of an order by a judge below in the exercise of his discretion is well established, and, any difficulty that arises is due only to the application of the well-settled principles in an individual case .' The appellate judgment does not seem defer to this principle. 43. Mr. Ali is, therefore, not incorrect in referring to the case of Smt. Kausalya Bania v. Brahmaputra Construction Ltd. reported in [2005] 2 GLT 190 ; AIR 2005 Gauhati 149, wherein the court has held that the power of interference by the appellate court in matters of injunction is circumscribed and that the appellate court would be slow to interfere with the exercise of jurisdiction and would not, normally, be justified in interfering with the exercise of discretion under appeal on the sole ground that if it had considered the matter at the trial stage, it might have come to a contrary conclusion. 44. What is, however, of immense importance to note is that neither the Wander Ltd. ( supra ) nor Smt. Kausalya Barua ( supra ) lays down that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party and proceed to observed that the creditors of a landlord who have claimed relief under the Encumbered Estates Act are necessary parties to the proceedings under that Act and that the object of the Act is to compel the landlord to surrender his entire property for the benefit of his creditors and to liquidate the debts of all the creditors in accordance with and to the extent permitted by the Act. There can be no question that these are the true tests for determining whether a person is a necessary party to certain proceedings ... (emphasis supplied) 47. Thus, in Rama Krishna Narain ( supra ), two tests have really been laid down for determining the question as to who can be regarded as necessary party in a civil suit, the tests being (1) that there must be a right to some relief against such a party in respect of the matter involved in the proceedings, in question, and (2) that it should not be possible to pass an effective decree in the absence of such a party. 48. What follows from the above discussion is that in order to treat a person as a necessary party to a suit, such a person must be one against whom the right to relief can be claimed and in whose absen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght before the court, is a suit, which falls within the jurisdiction of the court, (which has been approached) for the purpose of adjudication of the issue. If such a prima facie satisfaction is not reached or could not have been reached, interlocutory order of injunction, in either case, would be an order, which cannot be sustained. In Shiv Kumar Chadha v. Municipal Corporation of Delhi reported in [1993] 3 SCC 161, the apex court has, in no uncertain words, held that before any order of injunction is passed, the court must be satisfied that strong prima facie case has been made out against the plaintiff including, amongst others, on the question of maintainability of the suit. The relevant observations, made in this regard, in Shiv Kumar Chadha ( supra ), read (page 175): 30. It need not be said that primary object of filing a suit challenging the validity of the order of demolition is to restrain such demolition with the intervention of the court. In such a suit the plaintiff is more interested in getting an order of interim injunction. It has been pointed out repeatedly that a party is not entitled to an order of injunction as a matter of right or course. Grant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... junction is granted to mitigate the risk of injustice to the plaintiff during the pendency of the suit. Such injustice that may be caused to the plaintiff is to be weighed against the corresponding need of the defendant to be protected against the injury resulting from preventing him from exercising his legal rights. Therefore, the court is to weigh the plaintiffs need against the defendant and determine where the balance of convenience lies. It is being an equitable relief it rests on the sound judicial discretion of the court, to be exercised in the backdrop of the facts of each case. While granting or refusing the injunction, the court is also required, to see the conduct of the parties. 53. In fact, even before the decision in Shiv Kumar Chadha ( supra ), A three-Judge Bench in Municipal Corporation of Delhi v. Suresh Chandra Jaipuria reported in [1976] 4 SCC 719, had the occasion to consider the question as to whether a court can grant interim injunction, when a prima facie case has not been made out in the sense that the suit is barred in law. The apex court in Suresh Chandra Jaipuria ( supra ), while abstaining from deciding the question as to whether the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintainable or not. 58. Having pointed out above that a court, before it grants injunction, even temporarily, must reach a prima facie satisfaction that the suit, laid before it, is maintainable, it may, now, be noted that there are, broadly speaking, three grounds on which it is, on behalf of the appellants, contended, that the suit, in the form in which it was laid before the court, was even prima facie not maintainable and the learned trial court ought not to have granted injunction. The three grounds are : ( i ) that the plaintiff, as a share holder of the appellant-company, alleges oppressiveness and mismanagement in the affairs of the company by the board of directors and when a shareholder makes such an allegation, his remedy lies in making appropriate application under section 397 and/or 398 of the Companies Act inasmuch as a case, which is covered by the provisions of sections 397 and 398, falls within the exclusive domain of the Company Law Board, and the court of ordinary civil jurisdiction cannot try such a suit; ( ii ) even if the civil court had jurisdiction in the present case, the nature of reliefs, which the plaintiffs had sought for, required the sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol by Parliament through its power to force a change of Government. Like the Government, the directors will be answerable to Parliament constituted by the general meeting. But in practice (again like the Government), they will exercise as much control over Parliament as that exercises over them. Although it would be constitutionally possible for the company, in general meeting, to exercise all the powers of the company, it clearly would not be practicable (except in the case of one or two-man companies) for day-to-day administration to be undertaken by such a cumbersome piece of machinery. So the modern practice is to confer on the directors the right to exercise all the company's powers except such as the general law expressly provides must be exercised in general meeting. Of course, powers, which are strictly legislative, are not affected by the conferment of powers on the directors as section 31 of the Companies Act provides that an alteration of an article would require a special resolution of the company in general meeting. But a perusal of the provisions of the Companies Act itself makes it clear that in many ways, the position of the directorate vis-a-vis the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. The directors are not, however trustees of the shareholders, but, primarily, hold a fiduciary relationship so far as the company, represented by them, is concerned. No wonder, therefore, that the shareholders have, subject to such limitations as may be provided by the articles of association, a right to convene a general meeting and even remove a director and appoint another. 64. The principle, emanating from the above discussion, is that the majority shareholders' views bind the company. This position is well illustrated by the case of Foss v. Harbottle [1843] 2 Hare 461, too, wherein two of the shareholders instituted a proceeding against the directors and some others alleging against the defendants fraudulent and illegal transactions, whereby property of the company was misapplied, alienated and wasted, but at the general meeting, the majority resolved that no action should be taken against the directors. Dissatisfied with the majority decision of their company, two of the minority shareholders initiated legal proceedings against the directors and others to compel them to make good the losses to the company. The court dismissed the action on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject to the following exceptions, namely, the majority cannot confirm : (1)an act, which is ultra vires the company or illegal ; (2)an act, which constitutes a fraud against the minority and the wrongdoers, are themselves in control of the company ; or (3)a resolution, which requires a qualified majority, but has been passed by a simple majority. 66. In other words, the rule in Foss ( supra ), does not apply to such acts as referred to above inasmuch as the majority cannot sanction those acts. In the light of the subsequent judicial pronouncements, particularly, Edwards v. Halliwell reported in [1950] 2 All ER 1064 (CA), exceptions to the general rule as propounded in Foss ( supra ), are a resolution, which is ultra vires or illegal or is a fraud on the minority or is not bona fide or for the benefits of the company as a whole or is intended to discriminate between the majority shareholders and the minority shareholders is illegal and can be questioned by a separate action by the aggrieved shareholder. The reason is that if the minority were denied their right, their grievance could never reach the court, because the wrongdoers, being themselves in control, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing words': I think now it cannot be doubted that those two cases do constitute the law upon the subject. It is impossible to go behind those two cases : they are now part of the law of this country, and we must acquiesce whether we like them or not. 72. The result of the development of the doctrine of ultra vires, in the field of company law, is that a company is expected to have, as indicated in Palmer's Company Law (20th edition), by Schmith Off C. Curry T. P. E. (Sweet and Maxwell) the following powers : ( i )Power to do whatever (such things) is necessary to do with a view to the attainment of the objects specified in the memorandum. ( ii )Power to do whatever else (all such other things), which may fairly be regarded as incidental to, and consequential upon, its objects. ( iii )Power to do such other things as are authorised to be done by the Companies Act or by any other statute. 73. Thus, such transactions, which do not fall under any of the three categories mentioned above, are regarded as ultra vires. 74. The doctrine of ultra vires, I may point out, was developed to safeguard essentially the interest of the shareholders. By me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believed to be in the interest of the company. 77. In the case of Clemens ( supra ), the Chancery Division held that the aunt was not entitled, as of right, to exercise her majority votes as an ordinary shareholder in any way she pleased ; her right was subject to equitable considerations, which might make it unjust to exercise it in a particular way. Although it could not be disputed that she would like to see the other directors have shares in the company and a trust set up for long service employees, the inference was irresistible that the resolutions had been framed in order to put complete control of the company into the hands of the aunt and her fellow directors so as to deprive the plaintiff of her existing rights as a shareholder with more than 25 per cent, of the votes and to ensure that the plaintiff would never get control of the company. Those considerations, according to the court, were sufficient, in equity, to prevent the aunt using her votes as she had and the resolutions were accordingly set aside by the court. In reaching the said decision, the court applied the dicta of Sir Richard Baggallay, in North-West Transportation Co. Ltd. v. Henry Beatty [1887] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all under Chapter VI, which go by the heading, Prevention of oppression and mismanagement : 397. (1) Any members of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Company Law Board is of opinion ( a )that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and ( b )that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up ; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Company Law Board for relief, in cases of mis management. (1) Any members of a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them. (4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Company Law Board under section 397 or 398, notwithstanding that the requirements of clause ( a ) or clause ( b ), as the case may be, of sub-section (1) are not fulfilled. (5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any casts which the Company Law Board dealing with the application may order such member or members to pay to any other person or persons who are parties to the application. 400. Notice to be given to Central Government of applications under sections 397 and 398. The Company Law Board shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing a final or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y's affairs, upon such terms and conditions as appear to be just and equitable. 80. Before proceeding further, it may be noted that since no Tribunal, as provided in sections 10FB to 10GF (which was introduced by the Act 11 of 2003 with effect from April 1, 2003), has been constituted, the provisions, contained in sections 10FB to 10GF, which fall under Part IB and go by the heading National Company Law Tribunal , have not come into effect. It also needs to be noted, in this regard, that the word Tribunal , which occurred in sections 397, 398 and 399, were substituted for the word Court by Act 31 of 1988, with effect from May 31, 1991 and the same has, again, been substituted by the Act 11 of 2003 for the expression, Company Law Board . Thus, the Tribunal not having been constituted so far, the term, Tribunal , which occur in sections 397, 398 and 399, has to be read as Company Law Board . 81. From a careful reading of the various statutory provisions, contained above, what transpires is that according to section 397, the affairs of the company, public or private, must be conducted in a manner, which is not prejudicial to public interest and not oppressive to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Government may, if it considers just and equitable so to do, authorise any member( s ) to make application under section 397 and/ or 398. Thus, the restrictions, imposed by clauses ( a ) and ( b ) of sub-section (1), can be superseded if the Central Government forms the opinion as indicated hereinbefore. Even the Central Government may also, if it so chooses, make application under section 397 or 398. 85. The remedial scheme, contained in the statutory provisions of sections 397, 398, 399, 400, 401, 402 and 403, forms a complete code and has to be, therefore, construed as a complete scheme. When carefully analysed, it becomes clear, as already indicated above, that the mechanism of sections 397 and 398 cannot be resorted to by a shareholder to set at naught the decision of the majority shareholders inasmuch as the majority shareholders' view must, ordinarily, be allowed to prevail unless the decision of the majority (as reflected by sections 397 and 398), is prejudicial to public interest or interest of the company or oppressive to any member or members. 86. I may pause here to point out the provisions, which we find contained in Chapter VI, are provisions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government may make such an application. 88. Apart from the restrictions, which section 399 imposes on the right of the minority shareholder to make application under section 397 or 398, what must also be pointed out is that before sections 397 and 398 underwent amendment by the Act 53 of 1963, with effect from January 1, 1964, an aggrieved member could apply, under section 397, only if the affairs of the company were being conducted in a manner oppressive to him or other minority shareholders and he could apply, under section 398, if the affairs of the company were being conducted in a manner, which was prejudicial to the interest of the company. A new element of public interest has been specifically introduced into the scheme of sections 397 and 398 inasmuch as the expression, are being conducted in a manner prejudicial to the public interest , has been introduced into sections 397 and 398, for the expression, are being conducted . Hence, in the past, a member of a company could have approached the Company Law Board if the affairs of the company were being conducted in a manner oppressive to him and similarly situated other members provided that such member( s ) had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, as regards mandatory nature of requirements of sub-section (3) of section 399, was considered and the apex court held that whether the person, who has applied under sections 397 and 398, has the support or consent of the requisite number of members, is a question of fact, which can be gathered from the facts and materials on record and the mere fact that consent, in writing, has not been brought on record will not necessarily deviate the application made under sections 397 and 398. 91. What is, however, of immense importance to note is that J. P. Srivastava ( supra ) does not take the view that the requirement of section 399(3) that the shareholder, applying under section 397 or 398, must have support of requisite number of members or must hold requisite number of shares, is not mandatory. What, in substance, J. P. Srivastava ( supra ), held was that even if consent, in writing, is not shown, yet when the materials on record disclosed that had such a consent existed, the Company Law Board would have jurisdiction. 92. Logically, therefore, an applicant must have support of requisite number of members or must hold requisite number of shares. The reason is very simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil courts to determine all dispute of civil nature unless the same is barred under a statute either expressly or by necessary implication. Bar of jurisdiction of a civil court is not to be readily inferred. A provision seeking to bar jurisdiction of civil court requires strict interpretation. The court, it is well-settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil court. The burden of proof in this behalf shall be on the party who asserts that the civil court's jurisdiction is ousted (see Sahebgouda v. Ogeppa [2003] 3 Supreme 13. Even otherwise, the civil court's jurisdiction is not completely ousted under the Companies Act, 1956. (emphasis supplied) 95. The expression, completely , which occurs in the observations jurisdiction of the civil court is not completely ousted , made in Dwarka Prasad Agarwal ( supra ), indicates that in every case, it would be a matter for determination by the court if the provisions, contained in the Companies Act, bar a particular suit brought before the civil court and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statute must be followed and it is not competent to the party to pursue the course applicable to cases of the second class. 100. The above dicta of Wills, J ., was accepted by the House of Lords, in Neville v. London Express Newspaper Ltd. reported in [1919] AC 368 (HL). Though the dicta of Wills J. , in Wolverhamtos New Waterworks Co. ( supra ), has been modified to some extent in the subsequent decision (see Phillips v. Britannia Hygienic Laundry Co. Ltd. [1923] 2 KB 832 (CA), what has, however, remained as authority is the condition, that when a common law remedy is affirmed by a statute and the statute also provides a forum for remedy, the civil court's jurisdiction would not be treated as barred unless the statute, while affirming the common law right, bars, expressly or by necessary implication, the common law remedy or the jurisdiction of the civil court, (see Premier Automobiles Ltd. v. Kamlakar Shantaram Wadke reported in AIR 1975 SC 2238 and Rajasthan Road Transport Corporation v. Bal Mukund Bairwa reported in [2009] 4 SCC 299). 101. In Secretary of State v. Mask and Co. reported in [1940] 67 IA 222, it has been held by the Judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under a statute, the person, who is aggrieved, has the option of either approaching the civil court or pursuing the remedy, which the statute may have provided, but the civil courts' jurisdiction in such a case, would stand ousted if, while creating the right or recognizing the right, a statute also provides for remedy and excludes, expressly or impliedly, the jurisdiction of the civil courts to deal with such matters. 105. Let me, now, ascertain as to how far sections 397 and 398 oust the jurisdiction of the ordinary civil court in respect of rights, which these statutory provisions have conferred on the shareholders. This requires a clear look into the material aspects of development of the companies, Palmer's Company Law, vol. 1 (25th Edition), traces the history, in this regard, as under : 1.103. In the eighteenth and the beginning of the nineteenth centuries this form of association became increasingly popular, despite the difficulties which the Bubble Act, so long as it was on the statute book, placed in its way. As the Industrial Revolution advanced, business entrepreneurs began again to recognize the advantages derived from co-operation in commercial en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 the formation of unincorporated companies, at least of some size, as not possible : the Joint Stock Companies Act of that year and all subsequent Joint Stock Companies Acts and Companies Act prohibited the formation of unregistered companies, associations or partnerships for gain where the members exceeded a certain small number (originally 25 but reduced to 20 in 1856). This prohibition was contained most recently in section 716(1) of the Companies Act 1985 and (for limited partnerships) section 4(2) of the Limited Partnerships Act 1907, in each case subject to certain exemptions. This prohibition had been regarded as outdated for some time. The abolition of the maximum number was finally effected from December 20, 2002 by the Regulatory Reform (Removal of the 20 Member Limit in Partnerships etc.) Order 2002 (SI 2002/2003). The order repeals sections 716 and 717 of the Companies Act 1985 and amends section 4(2) of the Limited Partnerships Act 1907. The existing exemption orders in favour of certain stated professions are not repealed but fall into disuse. 106. The history of development of companies, as indicated by Palmer, clearly indicates that it is the law of contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up proceeding, the civil court's jurisdiction is impliedly barred. Though the Supreme Court took note of the decision, in Dwarka Prasad ( supra ), it has not differed from the law laid down in Maharaja Exports ( supra ). I, therefore, see no reason to take a view different from what was taken by the Delhi High Court in Maharaja Exports ( supra ) and, on this reasoning, I too hold that when a case falls within the four corners of section 397 and/or section 398, the ordinary civil court's jurisdiction would stand barred to deal with such a dispute. 109. What emerges from the above discussion is that a company shall be allowed to function according to the decision of the majority shareholders and a shareholder, who does not agree with the decision of the majority of the shareholders, cannot challenge the decision of the company except when the decision is, as held in Helliwell's case ( supra ), ultra vires the company or illegal or when the decision constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; or when a resolution, which requires a qualified majority, has been passed by a simple majority. If the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act and conduct, refused to allow him to buy the shares. The plaintiff has, therefore, instituted the present suit. 115. Let me, first, point out as to what a share is. As observed in Life Insurance Corporation of India v. Escorts Ltd. reported in [1986] 59 Comp. Cas. 548 ; [1986] 1 SCC 264, section 2(46) of the Companies Act defines shares as meaning share in the share capital of a company, and includes stock except where a distinction between stocks and shares is express or implied. 116. Section 84 makes a certificate, under the common seal of the company, specifying any shares held by any member prima facie evidence of the title of the members to such shares. Section 87 gives every member of a company, holding any equity share capital therein, a right to vote, in respect of such capital, on every resolution placed before the company, his voting right to be in proportion to his share of the paid-up equity capital of the company. Section 428 defines contributory and it includes the holder of any shares, which are fully paid-up. Apart from the rights given to a share holder to apply for appropriate order( s ) under sections 397 and 398, the shareholder, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person within or outside his company. Many a times, however, a private company may, in order to maintain close ties of the shareholders of the company, not allow intrusion of an outsider as a shareholder. Such a restriction can be imposed by the articles of association of the company. 121. In Palmer's Company Law, Vol. 1 (25th edition), it has been stated that the articles of a private company often contain restrictions, on the transfer of shares, in order to preserve the private character of the concern. As regards transfer of shares in private company, particularly, pre-emption clauses, Palmer's Company Law, points out, A private company is, normally, what the Americans call a 'close corporation' ; this means that its members are connected by bonds of kinship, friendship or similar close ties and that the intrusion of a stranger as shareholder would be felt to be undesirable unless his admission is accepted by those for the time being interested in the company. Some private companies are, in fact, so constructed as to amount, in economic terms, to incorporated partnerships with the attendant close connection between the members. For this reason, in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vent sales of shares to strangers so long as other members of the appellant company are willing to buy them at a price prescribed by the article and this is a perfectly legitimate restriction in a private company. 125 Having examined the provisions, embodied in the Companies Act, 1956, the apex court in V. B. Rangraj v. V. B. Gopalakrishnan, reported in [1992] 73 Comp. Cas. 201 ; [1992] 1 SCC 160, concluded, at paragraph 7, thus (page 205 of 73 Comp Cas) : These provisions of the Act make it clear that the articles of association are the regulations of the company binding on the company and its shareholders and that the shares are movable property and their transfer is regulated by the articles of association of the company. 126. Having examined the scheme of the Companies Act, 1956, the apex court has held, in V. B. Rangraj ( supra ), at paragraph 8, that under the Companies Act or Transfer of Property Act, 1882, the shares are transferable like any other movable property. The apex court points out that the only restriction on the transfer of the shares of a company is as may have been laid down in the articles of association, if any. A restriction, which is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer, for the Act (the English Act of 1980) itself gives such a power. It is only necessary to look to the articles to ascertain the restrictions, if any, upon it. Thus a member has a right to transfer his share/shares to another person unless this right is clearly taken away by the articles. 14. In Halsbury's Laws of England, 4th edition, paragraph 359 dealing with 'attributes of shares' it is stated that 'a share is a right to a specified amount of the share capital of a company carrying with it certain rights and liabilities while the company is a going concern and in its winding up. The shares or other interest of any member in a company are personal estate transferable in the manner provided by its articles and are not of the nature of real estate'. 15. Dealing with 'restrictions on transfer of shares' in Pennington's Company Law (6th edition) at, page 753, it is stated, that shares are presumed to be freely transferable and restrictions on their transfer are construed strictly and so when a restriction is capable of two meanings, the (less restrictive interpretation will be adopted by the court. It is also made clear that these rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d give the first option of purchase to the members of that branch and only if the offer so made was not accepted, the shares would be sold to others. This was a blanket restriction on all the shareholders, present and future. Contrary to the agreement, one of the shareholders of one branch, sold his shares to members of the second branch. Such sale was challenged in a suit as being void and not binding on the other shareholders. The Supreme Court rejected the challenge holding that the agreement imposed a restriction on shareholders' rights to transfer shares, which was contrary to the articles of association of the company. It was, therefore, held that such a restriction was not binding on the company or its shareholders. 133. The case of V.B. Rangaraj ( supra ) shows that no restriction on the transfer 1 of shares, contrary to the articles of association, can be imposed on the shareholders or the company itself. Conversely, the restriction, imposed by the articles of association, cannot be violated. Any action, which has been taken by a company or its shareholders, in general, or the directors, which is beyond the powers contained in the memorandum of association or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder, in a private company, may agree to sell his share to a person of its choice. Such an agreement can be specifically enforced. In fact, there is no dispute that the right to specifically enforce a contract flows from common law. Such a right can, therefore, be enforced through the civil court unless the Companies Act can be shown to have, expressly or impliedly, barred, in a given case, the jurisdiction of the civil court to specifically enforce a contract. Viewed thus, it is clear that the pre-emptive right, given to a shareholder, under the articles of association, can be specifically enforced by a civil court unless the Companies Act can be shown to have, in a given case, ousted the jurisdiction of the civil court. 138. It will, therefore, depend on the facts of a given case as to whether a suit for specific performance of contract of pre-emptive right to purchase share can or cannot be specifically enforced, though, ordinarily, it will be difficult to reject the claim of specific performance of contract of such a pre-emptive right unless the case is shown to fall within the four corners of sections 397 and 398 of the Companies Act, 1956. 139. Even in M. S. Madh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholder and it is a private arrangement unless the company becomes a party to such a decision. 142. Referring to the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 ; AIR 1965 SC 1535), which deal with the question of enforcement of an agreement relating to issue of new shares, the apex court, in M. S. Madhusoodhanan ( supra ), observed (page 62 of 117 Comp Cas) : . . . Therefore, while it is imperative that the company should be a party to any agreement relating to the allotment of new shares, before such an agreement can be enforced, it is not necessary for the company to be a party in any agreement relating to the transfers of issued shares for such agreement to be specifically enforced between the parties to the transfer. (emphasis is added). 143. Thus, to an agreement for specific performance of transfer of issued share, the company is, ordinarily, not a necessary party, for, the company would come into picture only when the question of recognising the transfer of share would arise. In a given case, a company has, in the light of section 111, freedom to, if so authorised by the articles of association, refuse transfer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of pre-emption, as regards purchase of share, it is not necessary to make a company a party to the suit, but the shareholder, against whom the pre-emptive right is sought to be exercised, is a necessary party. 146. However, if the right of pre-emption arises out of the articles of association the company would necessarily be treated as a party to the agreement inasmuch as the articles of association bind the company and not only regulates company's relationship with the shareholders, but also relationship of the shareholders inter se. In a suit, therefore, arising out of a right of pre-emption, given by the articles of association, both the shareholder, whose share is sought to be purchased by the plaintiff, as well as the company would be necessary parties. 147. It is, now, imperative to note that section 108(1) prohibits a company from registering a transfer of shares in a company 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 delivered to the company along with the certificate relating to the shares. Section 108(1A)( a ) provides for the presentation of the instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra ), observed as under (page 617 of 59 Comp Cas) : 83. Earlier we mentioned that section 111 of the Companies Act preserves the power of the company under its articles to refuse to register the transfer of any shares of the company. The nature and extent of the power of the company to refuse to register the transfer of shares has been explained by this court in Bajaj Auto Ltd. v. N. K. Firodia [1971] 41 Comp. Cas. 1 ; AIR 1971 SC 321. It was said that 'even if the articles of the company provided that the directors might at their absolute and uncontrolled discretion decline to register any transfer of shares, such discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal, in the facts and circumstances of the case. In the exercise of that discretion, the directors will act for the paramount interest of the company and for the general interest of the shareholders because the directors are in a fiduciary position both towards the company and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive'. Where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, which even the court did not have. The court also held that the purchase of share would be subject to the same limitations, as were there when the original owner held the share, that the compulsory character of the sale cannot prejudice the rights of the company and cannot alter the position of the purchaser. The relevant observations made in Manilal Brijlal ( supra ), read as under : 1. For the purposes of this argument, we must, of course, assume that the directors would be within their powers in refusing to register the present appellant if he were a private purchaser, and not a court purchaser. Upon that assumption, I can see no reason why the directors' powers should be curtailed merely because the appellant purchased at a court sale. For whether the sale is made by a private individual or by a court, it seems to me clear that the thing sold and transferred from the seller to the buyer is merely the property in the share plus a limited, not an absolute, right to have the transfer registered. But the appellant here contends, and must contend, that when he purchased, over and above the share, the absolute right of forcing the directors to register his name. But tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument that the company is deprived of its usual powers, and relieved of its corresponding obligations, to deal with a transfer application, when the transfer is sought in virtue of a court-sale. 3. I am, therefore, of the opinion that the purchaser at a court-sale is not entitled, as of right, to have his name entered in the register of the company as a shareholder. He is subject to the same rules on this point as a private purchaser undoubtedly is. 152. From what have been observed in Manilal Brijlal ( supra ), it logically 1 follows that the auction purchaser of the share had only equitable right on the said share ; whereas the original owner of the share still remained the legal owner. The principle enunciated in Manilal Brijlal's case ( supra ), has been followed by a Division Bench of the Madras High Court in T. Nagabhushanam v. S. Ramachandra Rao reported in AIR 1923 Mad 241. This view was, however, deviated by another Division Bench of the Madras High Court in T. A. K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd., AIR 1928 Mad 571, wherein the regulatory nature of the Companies Act vis-a-vis common law, was pointed out and held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive trustee and this obliged him to transfer all the benefits of property rights annexed to the sold shades of the cestui que trust. 155. It bears, repetition that the liability to specifically perform a contract was a liability under the common law. In such circumstances, a shareholder will have the right to seek remedy of the enforcement of his pre-emptive right to buy shares by taking resort to the civil court, unless the Companies Act can be shown to have, in a given case, excluded, expressly or impliedly, in this regard, the jurisdiction of the civil court. Unless, therefore, the appellants can show that in the facts and circumstances of the present case, specifically enforceable pre-emptive right, if any, of the plaintiff-respondent cannot be enforced by the civil court, the inference would be that such a pre-emptive right of the plaintiff could have been enforced and can be enforced by the civil court. 156. It may, however, be noted that transfer of share, in violation of the provisions, contained in articles of association, would not per se be void ab initio ; rather, such transfer would be voidable at the option of the aggrieved shareholder in the sense that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be treated to be a suit for specific performance of contract, for, the shareholders are, as correctly pointed out by Dr. Saraf, the owners of shares and it is they, who have to be compelled to sell shares, particularly, when I notice that the plaintiff considers himself not bound by the resolution adopted in the extraordinary general meeting of the appellant-company. This apart, in the present case, if the right to obtain relief of specific performance of contract of pre-emptive right of a shareholder exists, such a right exists against the shareholder, who seeks to sell his share, and no effective decree, in such a suit, can be passed in the absence of the shareholder, who seeks to sell his share, inasmuch as the shareholder, being owner of the shares, has to execute necessary documents for transfer of shares. In the light of the respective cases of the parties, particularly, in the light of the pleaded case of the plaintiff-respondent, whether the shareholders were necessary parties to the present suit is a question, which I would answer a little later. For the moment, suffice it to point out that if the decision of the shareholders, in the present case, is taken to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of association are regulations of the company and bind the company as well as its shareholders. In effect, the conditions, embodied in the articles of association, determine the terms of contract between the company and the shareholders as well as the shareholders inter se. I have also pointed out that in the light of the pro visions of section 9 of the Companies Act, 1956, when there is a conflict between the conditions imposed by the articles of association and the statutory provisions of the said Act, the statutory provisions would prevail. I have further pointed out that with the amendments, which sections 397 and 398 of the Companies Act, 1956, have undergone, it clearly follows that the affairs of every company, public or private, must not be carried out in a manner, which is prejudicial to public interest . In substance, therefore, adherence to the needs of public interest has to be read in the body of every articles of association of a company. Consequently, if public interest requires transfer of shares of a private company, such a transfer, even if not provided in the articles of association of a company, has got to be read into the articles of association. In sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the date of the circular letter, any shareholder is willing to offer the said price, and deposits the amount with the managing director in the office, the selling member, on receipt of intimation from the managing director to that effect shall transfer the share in favour of such shareholder only and not to the outsider : ( i ) Notwithstanding anything contained in these articles, the board of directors may at its discretion recognise a transfer of share( s ) by a member to any person if such transfer is in fulfilment of any object considered as charitable or beneficial or for any public purpose or warranted under any terms of a trust deed created by a shareholder with any such object. 163. A conjoint reading of the above clauses of the articles of association go to show that a shareholder, as per clause 7( b ), can, at any point of time, transfer a share to his or her father, mother, wife or husband, children, grand children or any male agnatic relation within three degrees or daughter in law, sister, sister's son or to any one of the existing shareholder of the company without previous sanction of the directors. However, clause 7( c ) and 7( d ) impose restrictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as charitable or beneficial or for any public purpose or warranted under any terms of a trust deed created by a shareholder with any such object . 166. Thus, notwithstanding the fact that sub-clause ( d ) of clause (7) gives pre-emptive right to the shareholders of the appellant-company to purchase shares offered for sale by another shareholder of their company, the board of directors may, subject to the conditions, which have been specified in sub-clause ( i ) of clause (7), recognise such a transfer of shares by any member to any outsider. 167. It could not be disputed, on behalf of the respondent, that sub-clause ( i ) 1 of clause (7) contains non-obstante clause, which is overriding in nature. If read carefully, what becomes transparent, from the provisions embodied in sub-clause ( i ), is that the pre-emptive right of the shareholders, under the articles of association of the appellant-company, becomes exercisable only when transfer or sale of shares by a member or members of the appellant-company to an outsider does not fall under the explanations given in sub-clause ( i ) or when, even if the conditions specified in sub-clause ( i ) are satisfied, the board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder, sub-clause ( i ) of clause (7) cannot be resorted to. 173. While interpreting the word beneficial , which occurs in sub-clause ( i ) of clause (7) of the articles of association, the court has to bear in mind that the word beneficial occurs between the words charitable and public purpose . The expression beneficial, which occurs in the memorandum of association, as aforesaid, has to be interpreted bearing in mind the concept of ejusdem generis . 174. It may be pointed out that ejusdem generis is a Latin expression, which means of the same kind . In Parakh Foods Ltd. v. State of Andhra Pradesh reported in [2008] 4 SCC 584, the apex court illustrated the doc trine of ejusdem generis by saying that (page 587) : . . . ejusdem generis is a Latin expression which means of the same kind , for example, where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed. In other words, it means words of similar class. According to Black's Law Dictionary (8th edition, 2004), the principle of ejusdem generis is where general words fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The word beneficial , in the context of the words, which appear in sub-clause ( i ) of clause (7), leaves no room for doubt that beneficial would be tantamount to public interest. This apart, I have already pointed out above, that in the light of the amendments introduced in sections 397 and 398, whereby it has been made possible for the court to interfere in the affairs of the company if the affairs of the company are being conducted in the manner prejudicial to public interest, the court is bound to read into every memorandum of association, the requirement of the company, public or private, to adhere to interest of the public. Viewed thus, it is clear that while considering the right to sell shares or restrictions on the right to sell shares, the court has to bear in mind that whichever interpretation advances the cause of public interest is the interpretation, which the court shall, in tune with the legislative intent, adopt. The legislative mechanism, provided in sections 397 and 399, would stand defeated if the court, while interpreting sub-clause ( i ) of clause (7) of the articles of association of the appellant-company, ignores the requirement of public interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the maximum extent. We propose to compete with China economically. We wish to attain the pace of progress achieved by some of the Asian countries, referred to as 'Asian tigers', e.g. , South Korea, Taiwan and Singapore. It is, however, recognised on all hands that the infrastructure necessary for sustaining such a pace of progress is woefully lacking in our country. The means of transportation, power and communications are in dire need of substantial improvement, expansion and modernisation. These things very often call for acquisition of land and that too without any delay, It is, however, natural that in most of these cases, the persons affected challenge the acquisition proceedings in courts. These challenges are generally, in the shape of writ petitions filed in High Courts. Invariably, stay of acquisition is asked for and in some cases, orders by way of stay or injunction are also made. Whatever may have been the practices in the past, a time has come where the courts should keep the larger public interest in mind while exercising their power of granting stay/injunction. The power under article 226 is discretionary. It will be exercised only in furtherance of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave decided, with ulterior motive, to act upon the resolution of the majority of the shareholders of the appellant-company to sell the shares to an outsider. In fact, the letter, which was issued, in this regard, by the board of directors, read as under : To, Date : 9-2-2008 ( a ) Sri Mridul Kr. Bhattacharjee - Joint shareholder ( b ) Smt. Tumani Bhattacharjee - Joint shareholder ( c ) Smt. Mahashweta Bhattacharjee - Joint shareholder ( d ) Smt. Mrdusmita Chablani - Joint shareholder ( e ) Sri Ronjoy Bhattacharjee - Joint shareholder Bamunimaidum, Guwahati-21 (Assam). Dear Sir/Madam, We would inform you that the board of our company has decided to dispose of the company with its tea estate and assets an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rounded of Rs. 4,29,26,000 Less : Liabilities including bank dues, Tea Board, P. F. dues, Market liabilities, etc., etc., Rs. 2,31,10,000, Rs. 1,98,16,000 Refundable by the purchaser along with consideration money : ( Rupees ) F. D. R. S. with S. B. I. with estimated interest up to 31-01-2008 11,77,00,000 Shareholder-Arpana Goswami's loan amount 10,340.00 Shareholder-Dipak Kr. Bhattacharyya's loan amount 60,000.00 Old share money of A. F. C. 5,000.00 Old Share money of Assam Co-operative Apex Bank Ltd. 250.00 NABARD deposit 13,000.00 A. S. E. B. labour advance and advance to workers 47,502.00 Security deposit with A. S. E. B. 3,38,314.00 Security deposit with J. C. M. C. (Mission Hospital), Jorhat 30,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l shareholder. Rs. 2,24,29,45 :- 23,760 Nos of shares = Rs. 944.00 per share (Approx. net consideration money per share) The above estimated net consideration money may slightly differ since confirmation of the outstanding dues of the Tea Board is awaited and the same is expected within a short time. Rate per kg of made tea on 2,52,505 kgs. on gross amount of Rs. 4,55,39,451.00 = Rs. 180.35 per kg of made tea. Note : To be deducted from the following shareholders individual share money at the time of releasing the shares money to them by the purchaser and the total amount will be added to our total net share money. 1. Smt. Arpana Goswami Rs. 10,340.00 2. Sri Dipak Kr. Bhattacharayya Rs. 60,000.00 (B) Brokers invoice advance of Rs. 13,00,000.00 (thirteen lakhs) approx will be paid by our company from sale proceeds lying in our bank account at the time of conclusion of the above deal with the proposed buyer. 182. In the circumstances, as discernible from the pleadings of the parties and from the materials o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o intend selling their shares and also to deliver possession of Radhabari Tea Estate unto the plaintiff. Is the plaintiff entitled to a decree of mandatory injunction, as has been sought for by him, without seeking specific performance of his alleged pre-emptive right, if any, to buy shares? The answer to this question can be found in section 39 of the Specific Relief Act, 1963, section 39 reads : 39. Mandatory injunctions. When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts, which the court is capable of enforcing, the court may, in its discretion, grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts. 186. From a bare reading of section 39, what becomes transparent is that mandatory injunction can be granted by a court only when the court is required to prevent breach of an obligation, which is cast on the defendant to perform certain act, the court considers that the defendant needs to be compelled to perform such acts and the obligator)' act is such, which the court is capable of specifically enforcing. Thus, the two essential elements, whose existence is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract of pre-emption, if any, is, in the present case, a contingent contract inasmuch as the right to buy share would arise only when a shareholder's decision to sell his share falls outside clause 7( i ) and/or when the board of directors does not permit a selling member to sell his share outside the company without offering an option to buy share to a shareholder, who may be interested in buying such share. Such a contract, being a contingent contract, is inherently determinable in nature inasmuch as the right of pre-emption is conditional and exercisable only when the transfer of share is not covered by clause 7( i ) or, when, though covered by clause 7( i ), the board of directors does not permit sale of share to an outsider without giving an option to buy share to another willing shareholder. Such a contingent contract, in the light of clause ( c ) of sub-section (1) of section 14 of the Specific Relief Act, is not specifically enforceable. 192. Thus, when the plaintiff's right, if any, to buy share, under the articles of association of the appellant-company, is a conditional and not an absolute right, such a right, being determinable in nature, is not specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or does not permit the shareholder concerned to sell his share to an outsider. When the plaintiff-respondent's case is dependant on fulfilment of the conditions precedent embodied in clause 7( i ), it cannot, merely on the basis of the provisions contained in clause 7( b ) of the articles of association of the appellant-company, be contended that in each and every case, a shareholder, such as, the plaintiff, has an absolute right to buy shares in preference to an outsider. No decree of declarations, in the present case, can, therefore, be prima facie granted as has been sought for by the plaintiff-respondent, particularly, when the plaintiff has not pleaded any such fact to show that in the facts and attending circumstances of the present case, the provisions of clause 7( i ) are not attracted or that the decision of the board of directors to act upon the resolution, adopted in the extraordinary general meeting of the shareholders of the appellant-company, is beyond their competence even in the face of the provisions of clause 7(1). 196. In the facts of the present case, one is also required to bear in mind the provisions of section 34 of the Specific Relief Act, 1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in favour of the plaintiff as has been sought for by him, the question of granting any preventive injunction, interim or otherwise, does not arise, particularly, when the injunction, in the present case, is only a consequential relief. This apart, when (as already held above) no specific performance of the alleged pre-emptive right of the plaintiff-respondent is, in the facts and attending circumstances of the case, possible, the preventive injunction which the plaintiff-respondent had sought for, could not have been granted. 199. Coupled with the above, what also needs to be noted is that though a court's satisfaction that a suit is prima facie maintainable is a pre-requisite for granting of injunction, the maintainability of the suit is, somewhat, a variable concept. 200. Maintainability , according to Advanced Law Lexicon, quoting Corpus Juris Secundum, has three meanings. The first meaning is to commence, to begin, to bring, to institute . The second meaning is to continue, to carry on, to support, as contradistinguished from to institute . The third meaning of the term is to commence and prosecute to a conclusion that which has already been begun. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be bound by the order of injunction, whereby the personal action of the members and officers of the Corporation are sought to be restrained. 203. The appellants are also-correct when they point out that the learned trial court has assigned no reasons for coming to the conclusion that there is a prima facie case for trial or that the balance of convenience is in favour of the plaintiff or irreparable loss would be caused if injunction was not granted. Having set out the facts of the case, the learned trial court concluded and directed as follows : After considering the above facts and circumstances, I find that petitioner-plaintiff has established a prima facie case in his favour and if the prayer of the petitioner-plaintiff is not allowed, then it will cause irreparable loss to the petitioner-plaintiff which cannot be compensated by money and the balance of convenience is also in favour of the petitioner-plaintiff. Considering the claim and counter claim of the parties, I find that is a fit case for granting temporary injunction in favour of the petitioner-plaintiff and it is also found that if the injunction is not granted in favour of the petitioner-plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eswarlu v. Motor and General Traders reported in [1975] 1 SCC 770, is also not misplaced inasmuch as in this decision, the apex court at paragraphs 4 and 5, has observed as under (pages 772 and 773) : 4. We feel the submissions devoid of substance. First about the jurisdiction and propriety vis-a-vis circumstances which come into being subsequent to the commencement of the proceedings. It is basic to our processual jurisprudence that the right to relief must be judged to exist as on the date a suitor institutes the legal proceeding. Equally clear is the principle that procedure is the handmaid and not the mistress of the judicial process. If a fact, arising after the lis has come to court and has a fundamental impact on the right to relief or the manner of moulding it is brought diligently to the notice of the tribunal, it cannot blink at it or be blind to events which stultify or render inept the decretal remedy. Equity justifies bending the rules of procedure, where no specific provision or fair play is violated, with a view to promote substantial justice subject, of course, to the absence of other disentitling factors or just circumstances. Nor can we contemplate any li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerpting one passage which brings out the point luminously (at page 103) : 'It is also on the theory of an appeal being in the nature of a re-hearing that the courts in this, country have in numerous cases recognised that in moulding the relief to be granted in a case on appeal, the court of appeal is entitled to take into account even facts and events which have come into existence after the decree appealed against'. 207. Even in Laxmi and Co. v. Dr. Anant R. Deshpande reported in [1973] 1 SCC : 37, on the question of subsequent development, the apex court has observed as under (page 45) : 27. It is true that the court can take notice of subsequent events. These cases are where the court finds that because of altered circumstances like devolution of interest it is necessary to shorten litigation. Where the original relief has become inappropriate by subsequent events, the court can take notice of such changes. If the court finds that the judgment of the court cannot be carried into effect because of change of circumstances of the court takes notice of the same. If the court finds that the matter is no longer in controversy the court also takes notice of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant-company be restrained from allowing the shareholders to sell their shares at the rate aforementioned along with the assets and liabilities of the appellant-company. Any restriction, if imposed in this regard, may prove disastrous not only for the company, but the public at large, for, a large number of lives are depending on the outcome of this appeal. 210. The discussions, held above, as a whole, may be summarised thus : The decision of the shareholders of the appellant-company to sell shares outside the company is a decision of the company itself, particularly, when the board of directors of the appellant-company has acted upon the decision so taken by the shareholders. The plaintiff-respondent is as much bound by this decision as any other shareholder. It is not the case of the plaintiff-respondent that the shareholders' decision to sell shares outside the company is not in public interest or prejudicial to the interest of the company. If the plaintiff-respondent is aggrieved by the said decision as a minority shareholder, his remedy lies in invoking jurisdiction under sections 397 and 398. Viewed thus, the present suit is not prima facie maintainable. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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