2007 (10) TMI 396 - HC - Companies Law

Transfer of Wind Energy Division from the first defendant to the second defendant - applicant seeking interim injunction restraining the second defendant from carrying on business of Wind Energy Division under any other name or through any other person and restraining the second defendant from in any manner pending compliance with the terms and conditions of sanction accorded by the shareholders of the first defendant to the defendants not to sell, pledge, mortgage or transfer the Wind Energy Division Held that - When pursuant to the slump sale agreement between D1-NEPC and D2-SWL, Wind Energy Division was sold to D2-SWL on certain conditions and consent was given by all the shareholders to that transaction by postal ballot, now the applicant/plaintiff cannot raise any objection and it cannot be considered as she has not made out any prima facie case as has been adumbrated above and has been held by the Supreme Court that a shareholder has a right to participate only in the profits of the company and has no right in the property of the company, the relief sought for in these applications are not related to the profits of the company but related to the property of the company, which cannot be entertained. Consequently, the applicant/plaintiff has no locus standi to raise objection pursuant to the terms of agreement between D1-NEPC and D2-SWL. It is well-settled that interim injunction would be denied in a case where granting of it would cause greater hardship to the defendant. The balance of convenience lies only in favour of D2-SWL. The plaintiff has neither established prima facie case nor has shown that the balance of convenience lies in her favour. On the other hand, if the interim injunction is allowed to continue, D2-SWL having invested huge amount would be subjected to irreparable loss and hardship. Having regard to the facts and circumstances of the case, the interim injunction already granted is to be vacated.

Issues Involved:
1. Challenge to the transfer of Wind Energy Division from the first defendant to the second defendant.
2. Application for interim injunction restraining the second defendant from carrying on business and from selling, pledging, mortgaging, or transferring the Wind Energy Division.
3. Allegation of breach of the slump sale agreement and fraud.
4. Maintainability of the suit and the plaintiff's locus standi.
5. Balance of convenience and irreparable injury.

Issue-wise Detailed Analysis:

1. Challenge to the Transfer of Wind Energy Division:
The plaintiff, a shareholder of the first defendant (D1-NEPC), challenged the transfer of the Wind Energy Division to the second defendant (D2-SWL). The transfer was executed through a slump sale agreement on 16-1-2006, and the plaintiff alleged that the transfer was detrimental to her interests and those of other shareholders.

2. Application for Interim Injunction:
The plaintiff sought interim injunctions to (a) restrain D2-SWL from carrying on the Wind Energy Division business under any other name or through any other person, and (b) restrain D2-SWL from selling, pledging, mortgaging, or transferring the Wind Energy Division pending compliance with the terms sanctioned by D1-NEPC's shareholders. The court had initially granted an interim injunction in favor of the plaintiff.

3. Allegation of Breach of Slump Sale Agreement and Fraud:
The plaintiff alleged that D1-NEPC and D2-SWL acted in collusion to defraud shareholders. She claimed that the defendants did not furnish required particulars and that only 87,50,000 shares were transferred to the trust formed by D1-NEPC, whereas D2-SWL should have transferred shares worth Rs. 10,62,50,000.

4. Maintainability of the Suit and Plaintiff's Locus Standi:
The court considered whether the plaintiff, as a shareholder, had the locus standi to challenge the transfer and seek interim relief. The court noted that the plaintiff had approved the slump sale agreement by postal ballot and that the procedural requirements under the Companies Act, 1956, were duly complied with. The court also observed that the plaintiff did not disclose her close relationship with the chairman and other office bearers of D1-NEPC, which could indicate that she was acting at their behest.

5. Balance of Convenience and Irreparable Injury:
The court weighed the balance of convenience and irreparable injury. It concluded that the balance of convenience favored D2-SWL, as the interim injunction would cause greater hardship to D2-SWL, which had invested a significant amount in the Wind Energy Division. The court found that the plaintiff had not established a prima facie case or shown that she would suffer irreparable injury if the injunction was not granted.

Conclusion:
The court vacated the interim injunction and dismissed the applications, holding that the plaintiff had no locus standi to challenge the transfer of the Wind Energy Division. The court emphasized that a shareholder has a right to participate in the profits of the company but no right in the company's property. The decision to transfer the Wind Energy Division was approved by the shareholders, including the plaintiff, and the procedural requirements were duly followed. The court's reasoning should not be construed as an expression of opinion on the merits of the case.

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