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2016 (7) TMI 34 - BOMBAY HIGH COURT

2016 (7) TMI 34 - BOMBAY HIGH COURT - TMI - Whether the plaintiff No.2 has authority to file suit on behalf plaintiff No.1 - lack of authorization - there was no board resolution authorizing Plaintiff No.2 to file the present suit on behalf of Plaintiff No.1 - Held that:- The Plaintiff No. 2 admittedly being the Promoter and Managing Director of the Company has not only not produced the Investment Agreement and/or Investment Agreement-I and/or the Subscription Agreement but has also not asserted .....

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of the Company's business" and need not actually relate to its business. A defamatory allegation concerning the Company's business, which had caused a considerable adverse impact on the Company's business leading to "substantial damages to the tune of ₹ 500 crores" can only be described as "material in the context of the Company's business". In the circumstances it is clear that as per the Plaintiffs' own case, the alleged defamatory statements are extremely material in the context of Plai .....

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t : Mr. J.P. Sen, Senior Advocate, along with Dr. Birendra Saraf, along with Mr. Rohaan Cama, Mr. Rohan Dakshini, Mr. Vineet Unnikrishnan, Ms. Rajashree Ram and Ms. Anuja Abhyankar, instructed by M/s. Federal and Rashmikant For the Official Liquidator : Gautam Ankhad, Mr. V. Patil, Vinod Sharma JUDGMENT 1. The present suit has been filed by the Plaintiffs against the Defendant alleging defamation by the Defendant. Plaintiff No. 1 is a Company named Subhiksha Trading Services Ltd. and Plaintiff N .....

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a, on the ground that Plaintiff No.2 had no authority to file the suit on behalf of Plaintiff No.1 and further that under the Articles of Association of Plaintiff No.1, any resolution for commencement or discontinuance of any litigation as set out therein required the consent of at least one Director nominated by the VC Investor (i.e. ICICI Trusteeship Services Ltd.) or the VC Investor itself. It was further submitted that there was no board resolution authorizing Plaintiff No.2 to file the pres .....

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d to deal with all legal matters in respect of the company pursuant to a resolution passed in a board meeting held on 9th April 2000. 4. At the hearing of the present suit, the Advocates for the Defendant prayed before the Court that Issue No.3, viz. the issue of maintainability based on the lack of authorization of Plaintiff No.2 to file the present suit on behalf of Plaintiff No.1, be tried first as a preliminary issue as it involved a pure point of law. After hearing the parties, by an order .....

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a pure issue of law. It relates to the bar of law in filing the suit and also jurisdiction of the Court to try the suit. In that view of the matter, the issue satisfies the requirements of Order 14 Rule 2 of the CPC. It is an issue purely of law; it relates to jurisdiction of the Court or bar to the suit by any law for the time being in force; and it disposes of a part of a case." As the only factual dispute was in relation to the existence of the resolution dated 9th April 2000 on a conces .....

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ents on record in the suit and were not matters /required to be led in by evidence and cross examined:- i. That the suit was instituted on behalf of 1st Plaintiff on behalf of the 1st Plaintiff by the 2nd Plaintiff relying on powers vested on him under the 9th April 2000, resolution of the board of directors of the 1st Plaintiff Company. ii. That the Articles of the 1st Plaintiff Company were amended thereafter setting out inter alia that, no litigation could be taken up by the 1st Plaintiff com .....

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ff No.2, a mere issue of law. The Hon ble Court has passed the impugned Order having been led to believe, erroneously, that what is stated in paragraphs 5 (i) to 5 (iii) above are admitted facts and admitted documents on records in Suit, which in fact, they are not. 7. The Hon ble High Court not having had the benefit of any pleading and relying solely on the oral arguments, in support of the request to consider hearing if issue no 3 as a preliminary issue, erred in not appreciating that, none o .....

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record and the admitted position of the parties on the record of the Suit were not at all considered by the Hon ble Court while passing the order and as such the order is in error apparent on record. Hereto annexed and marked as Exhibit A is a copy of the order dated 5th May 2015. 8. The actual facts from the pleadings of the parties and the material and documents on record of the Suit are as set out hereunder and are wholly contrary to the claims of the Defendant s Counsel based on which the Co .....

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e of any clause barring initiation of litigation de-hors the consent of investor, as claimed by the Defendant and as relied upon by the Court as being a matter of record, is in fact not a matter on record of the Court nor is the same a matter of record in the suit and as such cannot be considered by the Court as a mere issue of law, and evidence is required to be led on the same and proved by the party seeking to rely on same. In the absence of the Articles being brought on record by being tende .....

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ntiffs, that such consent to the filing of the suit, if required at all, from the investor is not available, nor is any document on record of the proceedings which indicates the investor has not given consent to the filing of the suit. This aspect as to whether the consent is required or not, assuming that such consent is at all required under the Articles can itself only be decided by way of evidence based on the Articles and the covenants therein The question of whether such consent is availab .....

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iminary issue as a issue of law without the parties needing to lead evidence and be cross examined. c. The resolution of the Board of Directors of the 1st Plaintiff dated 9th April 2010, is not the only basis on which the present suit has been filed. The resolution dated 9th April, 2000 was itself tendered in evidence the Plaintiffs on 3rd December, 2014. The provisions of Order 14 Rule 2(2) Code of Civil Procedure prohibits considering any issue of fact and not merely a disputed questions of fa .....

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hority on which the suit was instituted by the 2nd Plaintiff on behalf of the 1st Plaintiff and further erred in not noting that the said resolution itself having been only tendered in evidence the same was a matter of fact and was not capable of being considered in proceedings under Order 14 Rule 2(2) CPC merely because the Defendant seeks determination of issue after trial has commenced. d. The Petitioner s also submit that the Order dated 5th May, 2015 is further bound to be reviewed as the s .....

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venants exists, nor is there any document of the investor in relation to the consent for filing of suit, assuming such document is required at all and de hors these no finding can be rendered on enquiry on the said issue without evident without evidence. The order is bound to be recalled and set aside for this sufficient reasons as well as there would be no purpose in embarking on proceedings which can never lead to any determination de hors evidence being tendered From a perusal of the above po .....

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, 2015 is reproduced hereunder: Heard learned Counsel for the Review Petitioner. The Review Petition is on the footing that any decision on issue no.3, which is referred to in the order passed by this Court on 5 May 2015, requires leading of evidence. Having regard to the pleadings filed by the parties neither is there any dispute as to the identity of the Articles of Association of Plaintiff No.1 nor the contents of the Articles. In fact, when it was pointed out to the Court at the hearing on 5 .....

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and that is certainly a pure question of law. This question will be decided at the trial of Issue No.3 in accordance with the order of 5 May 2015. There is no ground for review of that order under Order 47 Rule 1 of the Code of Civil Procedure. The Review Petition is, accordingly dismissed. The Articles of Association tendered by learned Counsel for the Plaintiff in support of his application today are marked X for identification. 7. Accordingly, the hearing on issue No.3 viz. whether Plaintiff .....

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from Article 17A and in particular clause (t) thereof, it is clear that to commence or discontinue any litigation or arbitration which is material in the context of the Company's business, there would have to be a resolution of the Board of Directors or shareholders of Plaintiff No. 1 to which at least one Director nominated by the VC Investor [as defined in Article 2 (k)] or the VC Investor consents or votes in favour of. It is submitted that in the present case, no such resolution has been .....

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the same on behalf of Plaintiff No.1. This is exemplified by the fact that neither in the affidavit of evidence nor in any pleading before this Court has Plaintiff No. 2 ever contended that any such consent existed. It is further submitted that as to the present suit being material in the context of the company s business, it is the express case of the Plaintiffs (which is disputed by the Defendant), inter alia, in paragraphs 24 to 27 of the Plaint, that the alleged defamatory averments made by .....

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s of Plaintiff No. 1 s Articles of Association and therefore ought to be dismissed qua Plaintiff No.1. 9. The Learned Advocate appearing for the Official Liquidator appointed by the Madras High Court submitted that the Plaintiff No.1 was ordered to be wound up by an order 29th February 2012, passed by the Madras High Court and the Official Liquidator came to be appointed as Liquidator for the Company. The Appeal from the order of winding up was dismissed on 5th August 2015. It is submitted that .....

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elied on the judgment of this Court in the case of All India Reporter Ltd. vs. Ramchandra Dhondo Datar1. 1 AIR 1961 Bom 292 10. The Plaintiff No. 2 appearing in person has made the following submissions: 10.1 That the Articles of Association produced on record by the Defendant is an incomplete and inchoate document and cannot be relied upon by the Defendant. Article 37 of the document relied upon by the Defendant as the Articles of the Company holds that the contents and terms of three agreement .....

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reunder to be part of the Articles, cannot be relied upon by this Court as evidence that clause 17A (t) is in force either presently or as on the date of the filing of the suit as the effect of the covenants of these 3 Agreements on the impugned Article 17A (t) cannot be inferred in the absence of these documents. Any decision on whether the claim under Article 17A (t) operates at all despite the provisions of the three agreements referred to in Article 37 can be determined only if the said agre .....

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, in light of Section 28 of the Indian Contract Act, 1872. 10.4 That the Company's business has no nexus with the litigation herein as it cannot be even the case of the Defendant that the suit for defamation is in any manner in the context of the Company's business let alone being material to it. The Plaintiff No. 1 was India's largest food, grocery, mobile phone retailer and was in the business of retailing and the suit herein relating to tort of defamation is in no manner a matter .....

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ovisions of the claimed Article 17A (t) subject to such litigation being material in the context of the said Company's business. 11. The Learned Senior Advocate appearing for the Plaintiff has, in rejoinder to the submission advanced on behalf of the Official Liquidator attached to the Madras High Court, submitted as follows: 12.1 That the argument advanced on behalf of the Official Liquidator attached to the Madras High Court is, with respect, completely fallacious. The submission of the Of .....

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he Defendant has submitted as follows: 12.1 that the submission of Plaintiff No. 2 that the Articles of Association produced by the Defendant were incomplete and inchoate is baseless and untenable since the Defendant himself has tendered a copy of the Articles of Association of the Plaintiff Company before this Court (Coram: S.C. Gupte, J.) on 28th July, 2015 which the Learned Judge has taken on record and marked "X" for identification. The Defendant has not disputed the contents of th .....

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inconsistency between the provisions of Articles 1 to 36 and the provisions of the Investment Agreement and/or the Investment Agreement-I and/or the Subscription Agreement. In fact, the Plaintiff No. 2 has not even made an assertion to that effect. 12.2 That Plaintiff No. 2 had submitted before this Court (Coram: S.C. Gupte, J.) on 5th May, 2015 as well as in the Review Petition No. 52 of 2015 seeking review of the said order dated 5th May, 2015 that evidence would be required to ascertain wheth .....

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ission of Plaintiff No. 2 that the Articles of Association are void to the extent that they purportedly restrain the filing of the suit without the consent of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872, is misconceived. 12.4 That it is clear from paragraphs 24 to 27 of the Plaint that it is the Plaintiffs' own case that the alleged defamatory statements are extremely material in the context of Plaintiff No.1's business. 13. I have perused the pleadings and t .....

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paragraph 38 of the Plaint, the Plaintiff No. 2 has stated that he has signed and verified the plaint as the Promoter and Managing Director of Plaintiff No.1, there is no reference to Plaintiff No.2 being authorised on behalf of Plaintiff No. 1 to file the suit. The Defendant in his written statement challenged the maintainability of the suit on the ground that the Plaintiff No. 2 has no authority to file the Suit on behalf of Plaintiff No.1 and further that under the Articles of Association of .....

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aintiff No. 2 has authority to file suit on behalf of plaintiff No.1?" Plaintiff No. 2 filed an affidavit of evidence notarized on 9th April, 2014 claiming to be authorized to deal with all legal matters in respect of the Company pursuant to a resolution passed in a Board Meeting held on 9th April, 2000. 15. The Articles of Association of the first Plaintiff Company have been amended after the Resolution relied upon by the Plaintiff No. 2 dated 9th April, 2000. At the hearing of the present .....

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st, before the other issues are taken up for hearing. As the only factual dispute was in relation to the existence of the Resolution dated 9th April, 2000, on a concession by the Defendant, the same was taken on record and marked in evidence as Exhibit P-8. 16. Being aggrieved by the order dated 5th May, 2015, the Plaintiff filed a Review Petition (L) No. 25 of 2015 before this Court on 12th June, 2015. The points and grounds urged by the Plaintiff No. 2 in his Review Petition are already set ou .....

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cord and marked "X" for identification. It was clarified that the issue at hand was a pure point of law. 17. Article 17A and in particular clause (t) thereof read as under: 17A CONSENT OF THE VC INVESTOR: Until the listing of the shares of the company or till such time the VC Investor s share holding falls below 2% of the equity share capital of the Company, whichever is earlier the company shall not act upon any resolution of its Board or its Shareholders in relation to or affecting a .....

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hat to commence or discontinue any litigation or arbitration which is material in the context of the Company's business, there would have to be a resolution of the Board of Directors or shareholders of Plaintiff No.1 to which at least one Director nominated by the VC Investor consents or votes in favour of. Admittedly, in the present case, no such resolution has been passed by the Board of Directors or Shareholders of Plaintiff No. 1 to which consent as required under Article 17A has been ac .....

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t contended that any such consent existed. 18. As regards the contention advanced by Plaintiff No. 2 that in the present matter evidence would be required to ascertain whether consent had been obtained from the VC investor and whether the conditions for Article 17A to be made applicable, existed, in my view, this issue is foreclosed by the order dated 5th May, 2015 and 28th July, 2015 passed by S.C. Gupte, J. wherein it is clearly held that the issue at hand is a pure point of law. It is therefo .....

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hearing, in answer to an express question put by this Court, as also in response to a suggestion made on behalf of the Defendant that Plaintiff No.2 be directed to state on oath whether the shareholding of the VC Investor had fallen below 2% and whether the company had been listed, Plaintiff No.2 failed/avoided to provide an answer, stating only that the issues required evidence. The Plaintiff No.2 cannot be allowed to avoid/refuse stating the true and correct position which is to his knowledge .....

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y… ; the transferor company admittedly being Plaintiff No.1 herein. The judgment was in the context of a proposed Scheme of Arrangement which was a prelude to the shares of Plaintiff No.1 being listed. The Scheme was rejected by the said judgment, and the Appeal therefrom was eventually rejected on 5th August 2015. Thus, it is clear that there has been no such Scheme sanctioned by the Madras High Court, and there is no question of the shares of the company being listed in this manner. The .....

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te and inchoate document and the documents set out in Article 37 are intentionally suppressed by the Defendant by not producing the same before this Court along with the said Articles, it is pertinent to note that the copy of the Articles of Association containing Article 17A (t) as well as Article 37 is tendered in Court by the Plaintiff No.2 which the Court has taken on record and marked "X" for identification and the identity and contents of which are not disputed by the Defendant. .....

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I and the Subscription Agreement shall prevail. Further, it is clarified that in the event of any conflict between the provisions of the (i) Investment Agreement; (ii) Investment Agreement - I; and (iii) Subscription Agreement, the same shall be resolved in accordance with the conflict resolution mechanism contained in these Agreements." 21. The Plaintiff No. 2 admittedly being the Promoter and Managing Director of the Company has not only not produced the Investment Agreement and/or Invest .....

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behalf of Plaintiff No. 2 that the Articles of Association are void to the extent that they purportedly restrain the filing of a suit without the consent of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872. Section 28 of the Indian Contract Act, 1872 is reproduced hereunder: "28. Agreements in restraint of legal proceedings, void : (Every agreement, - (a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract .....

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ender illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exception 2 : Saving of contract to refer questions that have already arisen. - Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitrati .....

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restricted absolutely , which is clearly not the case as Article 17A only provides a pre-condition for filing of the suit, as stated above. Furthermore, Section 28 relates to restricting a party enforcing his rights under or in respect of any contract (emphasis supplied); the present suit is in respect of the tort of defamation and not to enforce a right in respect of any contract. Hence, ex facie Section 28 will have no application to the present case. 23. As regards the submission advanced on .....

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rial and are reproduced hereunder: "24. As a consequence of the defamatory statements made by the Defendant, various bankers have been reluctant to support the revival of the Plaintiffs and entities promoted by Plaintiff No.2 or offer concessions which otherwise would be made in normal course so as to enable the Plaintiffs to revive their businesses. The defamatory statements were deliberately made at a crucial juncture when the Plaintiff 2's Company was proposing to open a large number .....

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efendant be compelled to pay damages for loss suffered by each of the Plaintiffs for reason that the remarks were made out of malice and the Defendant should be liable to make payments to the Plaintiff for aggravated damages as well. Considering that the Defendant has brazenly used his position of influence and credibility to malign the image of the Plaintiffs in the eyes of all, this case also merits that this Hon'ble Court be pleased to award exemplary damages as it is necessary that perso .....

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Defendant the goodwill which was created by the Plaintiffs was tarnished so much so that the business associates and bankers of Plaintiff No. 1 were reluctant to support the Plaintiffs during the process of restructuring of Plaintiff No. 1. The published statements of Defendant also seriously impaired the Plaintiff 2's ability to get franchisees as also support from the creditors and vendors of goods and services for the resumption of business being worked upon by his company Blue Green Cons .....

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rations as also in society and to their standing and credibility in business and trade which setback is not fully quantifiable in monetary terms. 27. The Plaintiffs state that the Defendant is aware of the fact they have received security deposit of ₹ 2300,00,00,000/- Rupees two thousand three hundred crores) from Blue Green Construction and Investment Limited for in respect of a license for business granted by it to the said company and that the Plaintiff is entitled to receive ₹ 13 .....

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reason of the defamatory statements of Defendant, the said Blue Green Construction and Investment Limited is unable to rope in adequate franchisees. The goodwill and reputation of the Plaintiffs have been severely damaged and the Plaintiffs have suffered a serious setback in their ability to resume and revive business. The Plaintiffs therefore state and submit that they have been grossly defamed by the Defendant and are therefore entitled to claim apart from normal damages by way of compensatio .....

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telecast any articles defamatory of the Plaintiffs, similar to the article as stated above or any such similar articles. Hereto annexed and marked as Exhibit-E is the Particulars of Claim mentioned hereinabove." Sub-clause (t) of Article 17A makes it clear that the litigation must be "material in the context of the Company's business" and need not actually relate to its business. A defamatory allegation concerning the Company's business, which had caused a considerable ad .....

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usiness , let alone not being material to it. 24. As regards the submission advanced on behalf of the Official Liquidator attached to the Madras High Court that under Section 441 read with Section 457 of the Companies Act, 1956, the Official Liquidator was entitled to prosecute the suit on behalf of Plaintiff No. 1 and in light of Section 9 of the Companies Act, 1956, as the Official Liquidator was now appointed, the Official Liquidator was entitled to step into the shoes of Plaintiff No.1 and c .....

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er Section 536, and cannot be applied to cure a bar or a defect in the filing of the suit, which suit was filed prior in point in time to the winding up order. Furthermore, the contention that the Official Liquidator can ratify the failure to obtain consent as required under Article 17A cannot be accepted, as it would amount to an opportunistic misuse of the provisions of law. The suit being infirm on the date it was filed, it cannot be sought to be rendered proper merely by the happen chance of .....

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