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2017 (7) TMI 504 - BOMBAY HIGH COURT

2017 (7) TMI 504 - BOMBAY HIGH COURT - Tmi - Revocation of the leave granted to the Plaintiffs under Order 1 Rule 8 of the Code of Civil Procedure, 1908 - Held that:- The answer must, in turn, depend on the very position of the others who are claimed to be represented insofar as their interest in the suit is concerned. If by its very nature, their interest in the suit is not the same as the plaintiff, the application for leave must fail. If it is the same, the application must succeed. As we hav .....

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arise if separate suits were to be brought by them, there is a case for joinder of those others under Order 1 Rule 1. If not originally joined, they may seek joinder under Order 1 Rule 10. But it is still not a case for leave under Order 1 Rule 8. Apart from impleadment of parties under Order 1 Rule 10, the law also envisages several other ways of dealing with such situations. There could be clubbing of several suits for trial (if several individual suits are filed) or there could even be a tes .....

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m. That would be clearly unjust, if, in the first place, there was no warrant in allowing the Plaintiff to represent them. In the present case, the non-promoter shareholders, who do not want reinstatement of Mistry, would be bound to accept his reinstatement if the Plaintiffs were to succeed and on top of it, suffer such reinstatement as something which was prayed for on their behalf or for their benefit. To avoid such predicament, they would be forced to join the suit and defend it, when they r .....

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ja, Arjun Sharma, Ms. Juhi Mathur, Jeet karia and Ms. Eesha Mohapatra For The Defndant : Shiraz Rustomjee, Sr. Adv. Shailesh Poria, Janak Dwarkadas, Sr. Adv., Jehaan Mehta, Ms. Shireen Pochkhanawalla, Nirav Barot, Kaiwan Kalyaniwalla, Zal Andhyarujina, Jehangir Mistry, Ms. Shruti Sardesai, Ms. Namrata Parekh, Jay Sanklecha, Aditya Sikka, Mutahhar Khan, Rajesh Satpalkar, Dr. Birendra Saraf, Ankoosh Mehta, Aviral Sahai, Ms. Dhwani Shah, Bhalchandra Palav and Aditya Sikka JUDGMENT 1. This Chamber S .....

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nt Nos. 21 to 27 to the suit. The present suit is filed purportedly as a representative suit under Order 1 Rule 8 of the Code on behalf of all the non-promoter shareholders of Defendant Nos. 21 to 27, who have all been similarly affected by reason of the illegal actions that have been taken at the behest of Defendant No. 1 by Defendant Nos. 2, 3, 5 to 9 and 12 to 20 . Defendant No. 1 is the Director and interim Chairman of Defendant No. 2, Tata Sons Ltd., which is said to be a core investment co .....

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atan Tata (Defendant No. 1) in his place as the interim Chairman, both of which actions are said to be contrary to the Articles of Association of Tata Sons Ltd. and in total disregard of corporate governance and disclosure norms and against the best interest of public shareholders such as the Plaintiffs. The Plaintiffs submit that after the ouster of Mistry and appointment of Tata in his place, Tata Sons Ltd. abused its position as a dominant shareholder and holding company in the Tata group to .....

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ouster of Mistry from Tata Sons) and as of 6 December 2016 (in the aftermath of his ouster and steps taken by the group companies for his removal/ouster as chairman/director). It is submitted that there is a collective loss or erosion in value of shares of over ₹ 41,000 crores in Defendant Nos. 21 to 27 companies. The Plaintiffs, accordingly, pray for a declaration that the removal of Mistry as the Executive Chairman of Tata Sons was illegal and contrary to the interest of shareholders of .....

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15 of 2016, a learned Single Judge of this Court granted leave under Order 1 Rule 8 of the Code enabling the Plaintiffs to sue the Defendants on behalf, or for the benefit, of numerous persons having the same interest in the suit. 2.4 This leave is sought to be revoked by the Defendants named above on various grounds including lack of commonality of interest among the Plaintiffs and other 'non-promoter shareholders' of Defendant companies, who, it is submitted, do not in fact from a clas .....

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pect of the companies in which the Plaintiffs hold shares, learned Counsel submits that the grievance of each individual Plaintiff in this behalf is distinct and separate from the grievance/s of others. The Plaintiffs are not shareholders of each of the seven companies arraigned as party defendants (i.e. Defendant Nos. 21 to 27); they are shareholders of one or more of these companies, each of whom has distinct Articles of Association, and a separate and independent board of directors. It is sub .....

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est in the suit between them, but do not have such interest in common with other individual non-promoter shareholders of these seven companies. Learned Counsel submits that the non-promoter shareholders collectively of these seven companies, or even separately in case of each company, do not from a distinct class for the purposes of a representative suit such as the present. It is submitted that for forming such a class there must be a common interest and grievance in the suit, and a common bene .....

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chairmanship of Tata Sons Ltd., which triggered both the ousters of Mistry from the chairmanship/boards of the seven companies and the fall in share value of the companies. In that sense, it is submitted, the right to relief to each of the Plaintiffs arises out of the same act or transaction and this right is shared by them in common with other non-promoter shareholders of the seven companies. Learned Counsel submits that there is no need to show, as it is made clear by the Explanation to Order .....

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0) 1 SCC 608 : AIR 1990 SC 642 and the decisions of Madras and our High Court, respectively, in Kodia Goundar v. Velandi Goundar AIR 1955 Madras 281 and Kaira District Co.Op. Milk Producers Union Ltd. v. Kishore Shantilal Shah 1982 SCC OnLine Bom32, in support of his contentions. 5. Mr. Dwarkadas, learned Senior Counsel for Defendant No. 11 (Cyrus Mistry), also makes submissions on law, making it clear at the outset that his client does not wish to take sides in this representative suit and has .....

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other non- promoter shareholders of that particular company to claim relief in respect of fall in share prices of that company as a result of ouster of Mistry from Tata Sons Ltd. Learned Counsel argues that Order 1 Rule 8 formulates a methodology to avoid similar suits on the same cause of action, both from the standpoint of the actual/prospective plaintiffs, and the defendants. Sub- Rule (1) of Rule 8 enables one or more persons to sue, with the leave of the court, on behalf of others, whilst S .....

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ve a similar grievance in respect of other Tata companies, of which such others are shareholders, for the respective falls in the share prices of those companies, is an altogether different matter. It is rather an issue of joinder of causes of action and plaintiffs, respectively governed by Order 2 Rules 3, 4 and 5, and Order 1 Rule 1. What we have to consider here is, whether, assuming that there were seven different suits in respect of seven individual companies, shareholders of each company c .....

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t causes of action would compound the matter of permissibility or admissibility of grant of leave under Order 1 Rule 8 further, even if the test suggested by Mr. Dwarkadas is right. 7. With this preface, we may now turn to the issue of leave under Order 1 Rule 8 in the present case. Sub-Rule (1) of Rule 8 permits one or more persons to sue (or defend) with leave of the court on behalf of, or for the benefit of, numerous others provided that such others have the same interest in one suit. Sub-Rul .....

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nding on all persons on whose behalf, or for whose benefit, the suit is instituted (or defended). The Explanation appended to the Rule makes it clear that for claiming the same interest in one suit , it is not necessary to have the same cause of action as the persons on whose behalf, or for whose benefit, the suit is filed (or defended). That is the scheme of Order 1 Rule 8. This scheme is an exception to the general rule that all persons interested in the suit must be made parties to it. The ob .....

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ntial condition for application of this special rule, by its very nature, must be that the interest of persons interested must be really represented by those that file or defend the suit. For if that interest be clashing or different from the persons suing or defending on their behalf, or for their benefit, various anomalies would ensue if these latter were permitted to sue or defend on the former's behalf or for their benefit, and any decree in the suit were to bind the former. 8. That seem .....

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first is the right or liability, breach or accrual of which is complained of in the suit; the second is the injury or grievance resulting from any actual breach or accrual on the part of the opponent; and the third is the relief that is claimed in the suit. Each person having the same interest in the suit must have commonality with the plaintiff, or the defendant, as the case may be, in respect of each of these three components. If the suit is filed or defended for others, such others must, ther .....

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where the respondents, who were growers of fruit, flowers, vegetables, roots or herbs within the meaning of the Covent Garden Market Act, 1828, brought an action against the appellant, the Duke of Bedford. The action was brought on behalf of themselves and all growers of fruit, flowers, vegetables, roots or herbs. The grievance of the respondents in the suit was that the Covent Garden Market Act gave various preferential rights in respect of the use of the market to the class of growers represen .....

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of the writ. Romer J, who heard the summons taken out by the Duke to set aside the writ and all other proceedings, was of the view that the plaintiffs were not entitled to sue on behalf of themselves and all other growers of fruit, etc. within the meaning of the Act and stayed the action in respect of all matters and causes alleged in a representative capacity. The learned Judge ordered dismissal of the action unless the plaintiffs elected to proceed in respect of their individual and personal .....

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erentiates the cases of individual members of that class. The learned Judge also held that Order 16 of Rule 9 (which is in pari materia with our Order 1 Rule 8), which provided for persons suing or being sued as representing a class, was not restricted to apply only in a case where such persons have or claim some beneficial proprietary right, which they assert or defend. The learned Judge considered the old rule in the Court of Chancery, simple and perfectly well understood, that the Court requi .....

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s the proper basis on which a representative action is countenanced. The rule was stated thus: Given a common interest and a common grievance, a representative suit was in order if the relief sought was in its nature beneficial to all whom the plaintiff proposed to represent. The learned Judge noted that all growers in that case had the same rights; they relied on one and the same Act of Parliament as their common charter; they were aggrieved by the same acts of the Duke in denying those rights; .....

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to increase the rent of their tenants in order to balance their housing account in accordance with the obligations imposed on them by the Act. They served on the tenants the documents giving notice of their scheme to increase rent. The proposal was not to increase rents uniformly but having regard to the individual financial circumstances of the tenants. The scheme was not liked by the tenants and a tenants' protection association was formed. The four plaintiffs, with the support of some 9, .....

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stances of the case, were not entitled to bring a representative action. The trial court struck out the writ and stayed all further proceedings. In the plaintiffs' appeal, Evershed M.R., who wrote the leading judgment of the Appeal Court, was of the view that at first blush, one might be disposed to say that if there are 13,000 tenants with tenancies in identical form, then the case is one which the rule (Rule 9 of Order 16) would be designed to meet, on the grounds at least of convenience. .....

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growers and other persons. Even if it were to be assumed that all these 13,000 persons had this common right in the sense of a common interest, the grievance and the beneficial nature of the relief sought was not a matter in common between the tenants. The differentiation proposed in the scheme operated so that the more affluent of the tenants would end up subsidizing the less affluent. In fact, as was pointed out in that case, about 5,000 of the 13,000 tenants, who were of less affluent circum .....

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; group could not be said to be beneficial to the subsidized group. (The Corporation certainly had the right to increase the rent to meet its budget. An alternative scheme of increase in rent, say, uniform increase, would in fact be less beneficial to the subsidized.) Jenkins L.J, who agreed with Evershed M.R., noted that in order to determine whether the action was properly constituted as a representative action, it was necessary to look into the nature of the dispute far enough to be able to s .....

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ing for increased outgoings, or other objective considerations of that nature , the scheme charged rent by reference to the purse, and as such it was said to be ultra vires. What was argued was that it was beyond the powers of the defendants to charge differential rents according to the means and circumstances of the tenants, because the result of that would be that some tenants, those in more affluent circumstances, would, in effect, be subsidizing by the increases in rent imposed in their case .....

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being thus de-codified, let us consider if the facts of our case make out such interest and justify the leave granted under Order1 Rule 8. The present suit is filed on behalf of non-promoter members of Defendant Nos. 21 to 27. These members, in the first place, do not form a class for the purpose of the interest in the suit . No doubt each of these non-promoter members has the same right, breach of which is complained of in the suit, namely, the proprietary interest in his or her share in the pa .....

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above the group of persons represented in the suit, who may share the interest with the group, is neither here nor there, since that does not make the group sought to be represented any the less a combination of numerous parsons within the meaning of the rule.) But the commonality within the group of numerous persons, in the present case, ends there. They cannot be said to share the same grievance. The grievance, here, is the ouster of Mistry as the Chairman of Tata Sons at the meeting of its B .....

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such others; the Plaintiffs may, for that matter, be the only ones, amongst non-promoter shareholders of these companies, who have such perception. A drop in the share price, which may be seen as a temporary phenomenon brought about by immediate circumstances, in the first place, affects different shareholders differently. It is, for example, a well known fact that shareholders holding shares on a long term basis prefer to buy shares when the prices dip due to current market forces with a view .....

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ot, there is a sharp division amongst shareholders as to the outcome of a board meeting or a board resolution. Some may support a board decision, whilst the others may not. In short, each of the non-promoter shareholders in the present case may have the same type of proprietary right in the share and thereby, the same interest in protecting its value, but so far as the complaint of prejudice to that interest is concerned, other non-promoter shareholders may not have a common cause with the Plain .....

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ffs is that ouster of Mistry and the acts of other directors of Tata Sons that followed such oster caused a financial loss. As for the other non- promoter shareholders, the shoe may be on the other foot. Their perception may well be that it is Mistry and his promoter group who were conducting themselves against the interests of Tata Group of Companies, which prompted the Tata Sons Board, in the first place, to act the way they did and it is the resistance offered by Mistry and others to this act .....

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condly, the Plaintiffs claim monetary compensation. As for the reversal of the board decisions and reinstatement of Mistry, an overwhelaning majority, or, for that matter, every other non- promoter shareholder, may well choose to back the board and may not want the return of Mistry. There is no way, at any rate, that the relief can be considered to be beneficial to such others. Mr. Madon tried to distinguish between the expressions on behalf of and for the benefit of in clause (a) of sub-rule 1 .....

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e sense. The word 'or' must, if at all, be read as 'and' here. In any event, the two expressions cannot be read as mutually exclusive. You may sue on behalf of another, though not necessarily for his benefit, for he may concur in your benefit. But you can never sue on behalf of another, when such suit is to his detriment or against his interest. In the present case, the Plaintiffs cannot sue on behalf of others who resist Mistry's reinstatement. The relief claimed would, in t .....

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ho concur with, and share, the Plaintiffs' cause, and, secondly, if some individuals, who are claimed to be represented here, have a different perception and do not agree with the Plaintiffs, they may well choose to join the suit as defendants and oppose the suit. There is no merit in either of these suggestions. The fact that there are actually some others who support the Plaintiffs is not determinative of the issue. That is a mere coincidence. The question is whether there is a class of pe .....

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ust succeed. As we have noted above, by its very nature the interest in this suit of others of the alleged class is not the same as the Plaintiffs. If that is so, it does not matter that some others of that class have actually come forward in support of the Plaintiffs. That only means that there are, as it turns out, some others who claim the same right to relief in respect of, or arising out of, the same act or transaction, or series of acts or transactions. If that is so and if common question .....

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re could even be a test case (if other suits could later follow). 14. The second contention of Mr. Madon is also a non-starter. The same argument was advanced in the case of Cardiff Corporation (supra). The Plaintiffs' contention there was: The person who says: I do not want to be represented by you can ask to be joined as a defendant. The Court of Appeal rejected the contention, holding that such a result involves a serious inroad upon the ordinary individual's liberty to make this own .....

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decree, which they perceive to be to their detriment, will bind them. That would be clearly unjust, if, in the first place, there was no warrant in allowing the Plaintiff to represent them. In the present case, the non-promoter shareholders, who do not want reinstatement of Mistry, would be bound to accept his reinstatement if the Plaintiffs were to succeed and on top of it, suffer such reinstatement as something which was prayed for on their behalf or for their benefit. To avoid such predicame .....

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nder the same housing scheme and all relevant facts were common; the housing board had made a demand on all, after purportedly making a final determination of price, the basis of which demand was equally applicable to all the allottees and the plea of the plaintiff against such demand was available to all of them. The Supreme Court, in the premises, upheld the leave granted by the trial Court under Order 1 Rule 8. The argument before the Court was that each of these allottees was interested indi .....

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