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2004 (7) TMI 355 - SC - Companies LawWhether the statutorily required members of the company have approved the scheme or not? Whether the transfer of shares by the MIL to the appellant was in contravention of the interim order of injunction granted by the City Civil Court? Held that - Appeal allowed. There was no statutory need to have decided this issue while dealing with the application for approval of the Scheme under section 391 of the Companies Act, indeed, that issue did not arise before the Company Court. That apart basic principles of natural justice are violated by the courts below in deciding an issue against the appellant in proceedings to which the appellant was not even party. By this finding, the appellant s right to hold shares in the MIL gets affected and even the question of violation of the terms of injunction on facts of this case, was not a matter before these forums. Therefore, the findings given by the Company Court as affirmed by the Appellate Court as to the violation of the injunction order also as to the validity of the transfer and the title of the appellant over the shares held by it in the MIL being findings which are made beyond the jurisdiction of the courts below, no hesitation in setting aside these findings. This issue as to the violation of injunction order or any other issue pertaining to the validity of title of the shares transferred in favour of the appellant by MIL is a matter if at all, to be decided by the City Civil Court in the pending suits if it arises for consideration.
Issues:
1. Validity of shares allotment in contravention of injunction order. 2. Jurisdiction of Company Court in Amalgamation Proceedings. 3. Appellant's right to hold shares in the company. 4. Violation of natural justice principles in deciding issues without party involvement. Issue 1: Validity of shares allotment in contravention of injunction order The appellant, a Public Limited Company, challenged the allotment of shares by the respondent company, which was questioned due to an injunction issued by the City Civil Court. The Company Court approved the Scheme of Amalgamation despite the challenge, as it had the support of the requisite majority of shareholders. The Appellate Bench confirmed the violation of the injunction order regarding shares allotment to the appellant, affecting the appellant directly. Issue 2: Jurisdiction of Company Court in Amalgamation Proceedings The appellant contended that the Company Court exceeded its jurisdiction by delving into the validity of individual shareholders' titles during Amalgamation Proceedings under sections 391-394 of the Companies Act. The appellant argued that the Company Court's scope was limited to approving or rejecting the Amalgamation Scheme based on shareholder approval, which was well over 75% even without the appellant's shares. Issue 3: Appellant's right to hold shares in the company The appellant, not a party in the initial suits or proceedings, raised concerns about adverse orders affecting its rights without being involved in the legal process. The courts below were criticized for deciding on the validity of shares acquired by the appellant, which was deemed beyond their jurisdiction. The appellant's right to hold shares in the company was affected by the findings of the Company Court and the Appellate Court. Issue 4: Violation of natural justice principles in deciding issues without party involvement The courts were accused of violating natural justice principles by making findings against the appellant without its participation in the legal proceedings. The courts' decisions on the violation of the injunction order and the validity of the shares transferred to the appellant were deemed to be outside their jurisdiction. The Supreme Court set aside these findings, emphasizing that such issues should be decided by the City Civil Court in pending suits if they arise for consideration. The Supreme Court allowed the appeal, setting aside the findings of the Company Court and the Appellate Court. The judgment in Civil Appeal Nos. 4797 and 4798 of 1997 was also influenced by the decision in Civil Appeal No. 4796 of 1997.
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