1996 (7) TMI 463 - HC - Indian Laws

Summary

Issues Involved:
1. Allotment of shares in breach of an injunction order.
2. Jurisdiction of the court to decide on the validity of share allotment.
3. Competency to contract under restraint orders.
4. Legal consequences of actions taken in breach of court orders.

Summary:

1. Allotment of Shares in Breach of an Injunction Order:
The company issued shares to NOCIL and Shushrupad Investment Limited during the rights issue of 1987, despite a prohibitory injunction from the City Civil Court, Ahmedabad. The court found that NOCIL was not a shareholder on the relevant date and Shushrupad was entitled to only 563 shares. The allotment of shares beyond these limits was deemed contrary to the court's order. The learned single judge held that the company was estopped from arguing that the breach of the court order should only result in a contempt action without affecting the validity of the allotment.

2. Jurisdiction of the Court to Decide on the Validity of Share Allotment:
The company argued that only the Company Law Board had jurisdiction u/s 111(4) of the Companies Act to rectify the register of members and that the objector should have sought this remedy. The court rejected this argument, stating that the issue of whether shares were allotted in breach of a court order is within the jurisdiction of the civil court, and rectification of the register would be a consequence of such a finding.

3. Competency to Contract Under Restraint Orders:
The court examined the competency to contract under restraint orders, concluding that a person under a prohibitory order is temporarily disqualified from entering into contracts regarding the restrained property. The court stated that the competency to contract is affected by the injunction, rendering any transaction in breach of such an order invalid.

4. Legal Consequences of Actions Taken in Breach of Court Orders:
The court held that transactions carried out in breach of an injunction order are not automatically valid. It emphasized that the purpose of injunctions is to prevent certain actions and that allowing transactions in breach of such orders would undermine judicial authority and public policy. The court confirmed that allotment of shares to NOCIL and Shushrupad without court permission was invalid and dismissed the cross-objection.

Conclusion:
The High Court of Gujarat upheld the findings of the learned single judge, confirming that the allotment of shares to NOCIL and Shushrupad in breach of the injunction order was invalid. The court also asserted its jurisdiction to decide on the validity of such allotments and emphasized the importance of adhering to court orders to maintain the rule of law and public policy.