2000 (7) TMI 853 - HC - Companies Law

Summary

Issues Involved:

1. Legality of the first defendant's actions in calling for early pay-in of shares and withholding funds.
2. Legality of the auction of shares by the first defendant.
3. Legality of declaring the plaintiff a defaulter.
4. Compliance with principles of natural justice.
5. Impact of the first defendant's actions on the plaintiff's business and reputation.
6. Public interest versus private interest.

Issue-wise Detailed Analysis:

1. Legality of the first defendant's actions in calling for early pay-in of shares and withholding funds:

The plaintiff sought a declaration that the first defendant's actions in calling for an early pay-in of 2,90,764 shares of Vakrangee Software Ltd. (VSL), withholding the plaintiff's margin money of Rs. 43,11,662, and the BASE capital of Rs. 25 lakhs, and not paying out the shares and securities for which the plaintiff had already made payments, were "totally bad and illegal." The plaintiff argued that the responsibility for delivery of shares sold on behalf of the second defendant arose after seven days of the sale, and thus the first defendant's demand for early pay-in without providing reasons was illegal and taken for ulterior motives.

2. Legality of the auction of shares by the first defendant:

The plaintiff also sought a declaration that the auctioning of the shares by the first defendant was "totally bad and illegal." The plaintiff informed the first defendant that the second defendant was ready and willing to give delivery of the shares provided the share prices were paid over by the first defendant to the second defendant. However, the first defendant proceeded with the auction, causing a significant financial impact on the plaintiff.

3. Legality of declaring the plaintiff a defaulter:

The plaintiff challenged the decision of the first defendant to declare the plaintiff a defaulter through a letter dated 6-7-2000. The plaintiff contended that this decision was made without proper justification and was in violation of the principles of natural justice. The plaintiff argued that the first defendant acted illegally and at the behest of VSL.

4. Compliance with principles of natural justice:

The court examined whether the first defendant had complied with the principles of natural justice in deactivating the plaintiff's BOLT and declaring the plaintiff a defaulter. The court noted that the plaintiff had been in default in delivering shares since 20-6-2000, and multiple auctions had to be held due to non-delivery. The court found that there had been sufficient compliance with the principles of natural justice, as the plaintiff had been given opportunities to rectify the situation but had failed to do so.

5. Impact of the first defendant's actions on the plaintiff's business and reputation:

The plaintiff argued that the deactivation of the BOLT and the press release by the first defendant had caused significant damage to the plaintiff's reputation and business. The plaintiff claimed to be suffering a loss of Rs. 50,000 per day due to the deactivation. However, the court noted that the plaintiff's continuous defaults had led to a panic situation for the officials of the BSE, and the public interest had to be weighed against the plaintiff's private interest.

6. Public interest versus private interest:

The court emphasized that public interest must always prevail over private interest. The continuous defaults by the plaintiff had caused concern for the general investors, and the actions taken by the first defendant were in the interest of maintaining market integrity. The court found no merit in the plaintiff's claims that the first defendant's actions were arbitrary or capricious.

Conclusion:

The court dismissed the Notice of Motion, finding no merit in the plaintiff's claims. The court held that the actions of the first defendant were legal and justified, and there had been sufficient compliance with the principles of natural justice. The court also noted that any loss suffered by the plaintiff could be compensated by damages, and public interest must prevail over private interest.