2009 (1) TMI 472 - HC - Companies Law

Further issue of Share capital - Whether the Writ Appeal is maintainable when relief is granted by the learned Single Judge exercising supervisory jurisdiction under Article 227 of the Constitution? - whether suit can be filed against a special resolution passed by the Bank for issuing rights shares? Held that - The question whether a writ under Article 226 can be issued or not is not an issue to be considered as the learned Judge has set aside Ext. P9 order of the civil court exercising supervisory jurisdiction under Article 227 of the Constitution. Considering the wording of section 5 of the Kerala High Court Act, we are of the view that an appeal against an order under Article 227 is not maintainable. Assuming that the writ appeal is maintainable against such order, we consider the other aspects of the case argued by the appellant, as both sides raised contentions on all points. We have already stated that in view of the Reserve Bank of India s circular, the bank has to increase the share capital and the bank would have obtained by way of rights shares an amount of ₹ 1,22,71,56,840 in August, 2007 and interest on the above amount itself is very huge. When there are more than 28,000 shareholders, appellant who paid ₹ 20 as court fee and who is having only 200 shares filed the suit and caused this situation. Appellant has no right to represent other shareholders. Only two or three shareholders came forward and supported the appellant pursuant to the notice issued. The special resolution was passed unanimously in the Annual General Meeting and considering the grave injustice caused by the stay order based on patently illegal interpretation of law, we are of the view that the learned Single Judge was right in interfering with Ext. P9 by exercising supervisory jurisdiction to prevent failure of justice. A patent illegality causing grave injustice is prevented by the impugned judgment. In any event, we have already stated that learned Judge passed the impugned judgment only under Article 227 of the Constitution as expressly stated in the judgment and the writ appeal is not maintainable and even if it is maintainable, no relief can be granted in an intra court appeal as learned Judge has correctly exercised the supervisory jurisdiction.

Issues Involved:
1. Maintainability of the Writ Appeal.
2. Jurisdiction of the Civil Court.
3. Maintainability of the Writ Petition.
4. Violation of Mandatory Provisions of the Companies Act in issuing shares.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Appeal:
The preliminary question was whether the Writ Appeal is maintainable when relief is granted by the learned Single Judge exercising supervisory jurisdiction under Article 227 of the Constitution. Section 5 of the Kerala High Court Act, 1958, provides for an intra-court appeal only against orders passed by a Single Judge under the original jurisdiction. The order passed under Article 227 is under supervisory jurisdiction. The Supreme Court in *Umaji Keshao Meshram v. Smt. Radhikabai* held that no appeal would lie against a Single Judge's order or judgment passed in exercise of the supervisory jurisdiction under Article 227. The Full Bench of the Karnataka High Court in *Gurushanth Pattedar v. Mahaboob Shahi Kulburga Mills* also held the same view. The proceedings under Article 226 are in exercise of original jurisdiction, while those under Article 227 are supervisory. Thus, the writ appeal is not maintainable.

2. Jurisdiction of the Civil Court:
The second issue was whether the civil court has jurisdiction to try the suit challenging the special resolution passed by the Bank for issuing rights shares. Under Section 9 of the Code of Civil Procedure, civil courts have jurisdiction to try all suits of a civil nature unless expressly or impliedly barred. The Supreme Court in *Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers (P.) Ltd.* held that unless jurisdiction is expressly or implicitly barred under a statute, the civil court would have jurisdiction. The Company Law Board is not vested with the power to hear appeals or applications alleging violation of Sections 81 and 81(1A) of the Companies Act. The civil court has jurisdiction to deal with the matter as the Company Law Board has no jurisdiction to interfere with the resolution passed to issue rights shares.

3. Maintainability of the Writ Petition:
The third issue was whether the writ petition challenging the impugned order passed by the civil court is maintainable. The supervisory jurisdiction under Article 227 is very wide and can be used to meet the ends of justice. The Supreme Court in *Surya Dev Rai v. Ram Chander Rai* held that the orders and proceedings of a judicial court subordinate to the High Court are amenable to writ jurisdiction under Article 226. However, the learned Single Judge set aside the order of the civil court exercising supervisory jurisdiction under Article 227. The High Court can interfere under supervisory jurisdiction if the error is manifest or apparent on the face of the record, or the order was passed in utter disregard of the provisions of law, causing grave injustice.

4. Violation of Mandatory Provisions of the Companies Act in Issuing Shares:
The fourth issue was whether there was any violation of the mandatory provisions of the Companies Act in issuing the shares. Section 81(1) of the Act provides for the further issue of capital and the rights of existing shareholders. Section 81(1A) allows deviation from these provisions if a special resolution is passed. Here, a special resolution was passed authorizing the Board of Directors to make deviations from the provisions of Section 81. The appellant contended that there was a violation of Section 81(1)(b) as 15 days' notice was not given. However, the offer was made on 21-7-2007, and the issue opened on 16-8-2007, providing more than 15 days' notice. The appellant also contended that there was a violation of Section 81(1)(c), but Section 81(1A) allows for such deviation if a special resolution is passed. The learned Single Judge found no violation of the provisions of the Act and set aside the civil court's order under supervisory jurisdiction to prevent grave injustice.

Conclusion:
The writ appeal is dismissed as it is not maintainable. The civil court has jurisdiction to deal with the matter. The writ petition challenging the impugned order passed by the civil court is maintainable under supervisory jurisdiction. There was no violation of the mandatory provisions of the Companies Act in issuing the shares, and the learned Single Judge rightly exercised supervisory jurisdiction to prevent grave injustice.

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